The pound pulled back from a steep rally this week over uncertainty about Prime Minister Boris Johnson’s next move after Parliament tore up his Brexit strategy.
Sterling posted its biggest increase in six months Wednesday after lawmakers voted to force Johnson to delay Brexit by three months but gave back some of the gains Thursday, as investors digested the latest round of parliamentary drama.
Sterling has fallen since Johnson came to power promising to leave the European Union by Oct. 31 “do or die”. With that strategy now in tatters, the only way to regain control of a majority in Parliament is to fight an election.
Lawmakers rejected Johnson’s call for a vote last night, but the opposition Labour party has said it would fight an election once the Brexit delay is passed into law. An election could push the pound down to $1.19, according to a recent Bloomberg survey.
“Our central scenario was ’deal or delay’ at the end of October, so we expected the pound to pick up,” said Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA. “It has, but not as much as we guessed, still reflecting that, almost come what may, there is too much uncertainty to entice buyers back.”
The pound has recovered most of the ground it lost since Johnson announced last week that he would suspend Parliament for over a month ahead of the Brexit deadline, setting off a rebellion which ultimately led to Parliament seeking to block him from pursuing a no-deal.
The pound fell 0.3% to $1.2218, after gaining 1.4% Wednesday. The currency weakened 0.1% to 90.15 pence per euro.
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