The failure of Prime Minister Theresa May's Brexit deal in the Commons is now priced into the sterling. 

I would have hesitated to say that at the beginning of the week.  But the news for the Prime Minister has been terrible all week and the pound is at  1.2802 more than a figure above Tuesday's low of 1.2658 (5:10 pm EST, New York).

Conventional opinion is that the sterling will be sold two or three figures if the Commons rejects Ms May's agreement. 

Here is the opposite logic. If the Brexit deal is rejected the possibilities of the alternatives, a second referendum, Parliament’s abandonment of the whole project or the Norway option, rise substantially. This assumes Ms May remains Prime Minister.

The first two would send the sterling higher, at least until polls began to report on the referendum odds.  If the Norway option gathered serious consideration it would probably have the same effect, though it is harder to gauge because the details are unknown. 

Ms May could attempt to renegotiate the customs union exit clause of the rejected deal with the EU Commission but Michel Barnier among others on EU side has said repeatedly that this is the final deal there will be no more negotiation. 

If the choice was between helping Ms May get the agreement through Commons or a no-deal Brexit, the Commission might have had incentive to help to negotiate a unilateral exit from the backstop union.  If Britain crashed out of the EU the damage would be equally harsh resulting in a European recession on both sides of the Channel. 

Since both May and the Commons have ruled out a no-deal exit, the possibility and the reason for the EU to renegotiate is minimal. That danger to the sterling is not being considered. 

It is possible that an inability to gain Parliament approval of the Brexit deal makes it impossible to gain a majority for any course in the Commons. By default, that could send the UK into a no-deal exit as the March 29th exit date is set in British law. In reality that seems the least likely path.  About the only thing all sides agree on is that a no-deal exit would be a disaster. The EU would quickly agree to postpone the March 29th exit at the UK request.

 As the chances of May's Brexit deal approval sink the odds of the UK remaining in the EU climb. The exit referendum was approved 52%-48%. That might not be difficult to overturn. 

If the Brexit deal fails in Parliament on Tuesday the Remain side will see a leap in hope that will support the sterling. If Brexit passes the relative financial and economic stability will also boost the pound. 

If Brexit falls in the Commons markets could alternatively choose to focus on the confusion and uncertainty of the next four months as a reason to sell the sterling. I just don’t think they will. Markets will be pleased that the odds of Britain staying in the EU will improve dramatically.

That is more than enough reason to buy the pound.  

As this advances we may see speculation on whether Ms May's secret goal was exactly what seems to be happening.

She was after all, a Remainer in thought. Perhaps in deed too

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD retreats after strong NFP, weak German data

EUR/USD is trading below   1.11 after US Non-Farm Payrolls beat expectations with 266K and mixed wage growth. Earlier, weak German data weighed on the euro. Updates on trade are awaited.


GBP/USD shrugs off strong NFP, focuses on UK elections

GBP/USD is trading below 1.3150 but off the post-NFP lows. The US gained more jobs than expected. The Conservatives remain in the lead ahead of the debate between PM Johnson and Labour leader Corbyn.


US recession? Not so fast, a calm look at the economy and currencies ahead of the NFP

Recent US economic indicators have been downbeat, but they include silver linings and are backed by robust consumption. Valeria Bednarik, Joseph Trevisani, and Yohay Elam...

Read more

Gold drops to fresh multi-day lows on upbeat NFP report

Gold faded an intraday bullish spike to the $1480 area and tumbled to fresh multi-day lows, around the $1465 region in reaction to upbeat US monthly jobs report.

Gold News

USD/JPY: bearish ahead of US employment figures

Japanese data missed the market’s expectations, triggering fresh concerns about the economy. Focus on US employment figures, market players anticipate dismal numbers. USD/JPY is technically bearish could break below the 108.00 level.


Forex Majors