Brexit Vote 3 Quick Analysis: Parliament took the pound down, but could lift it on Monday

For the third time, MPs rejected May's Brexit deal.
Parliament has an opportunity to show the way forward on Monday.
GBP/USD has room to recover, but the situation is complicated.

Yohay Elam FXStreet

The UK House of Commons voted against the Brexit Withdrawal Agreement by a majority of 58: 344 against and 286 for the deal. While smaller than the previous 149 and 230 margins, the result is loud and clear.

UK PM Theresa May said that she regrets the result and said that "I fear we are reaching the limits of this process in this House", hinting of a general election, something supported by the opposition parties as well.

The Pound was under pressure ahead of the vote and reacted with a drop to a new low of 1.2977, above support at 1.2960, before balancing out.

But before the country goes to elections and Sterling stumbles further, Parliament may have a chance to show another way.

Indicative Votes 2

After what was dubbed as Meaningful Vote 3 or MV3 or 2.5, Parliament will have Indicative Votes 2 on Monday, April 1st, April Fool's Day. In Indicative Votes 1, all eight alternative Brexit proposals were rejected. The one suggesting a closer economic relationship came closest to begin approved. And the one offering a second referendum got the highest number of votes.

The second round of these non-binding votes could see MPs coalescing around one winning proposal, presumably a softer version of Brexit. If there is a clear majority, the government may have to respond. In this scenario, the pound could rise.

Other scenarios

Another pound-positive outcome would be a general election after the deadlock. An election will likely result in delaying Brexit for a long time until a new leadership emerges and opts for another direction. The same goes for a second referendum, which has lower chances.

However, the default option remains that the UK leaves the EU on April 12th, without a deal. The cliff-edge scenario is something nobody wants on both sides of the Channel. If this outcome becomes more real, the pound will fall.

European Council President Donald Tusk reacted instantly and called for an emergency EU Summit on April 10th, just two days before the cliff.

Conclusion

All in all, the third defeat for May was a small loss for the pound. It may eventually turn into a huge win for Sterling, but the default option must be removed first.

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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