• The UK PM has officially asked the EU to delay its exit.
  • Public statements have shown growing support for the Brexit deal.
  • An amendment requiring a second-referendum is gaining traction.

The tables have been turning in favor of the pound on Sunday – after a messy "Super Saturday" that saw an increase in uncertainty.

The extraordinary session of parliament on the weekend was supposed to approve UK Prime Minister Boris Johnson's hard-fought Brexit deal. However, Sir Oliver Letwin stole the show with his amendment. The modification forced Johnson to ask the EU to ask for a delay to leaving the UK until all relevant legislation – the Withdrawal Act Bill – is passed.

The PM responded by saying he "will not negotiate a Brexit extension with the EU", thus adding to the uncertainty. Following the approval of the Letwin amendment, parliament practically ended its session and left the legislation for early in the upcoming week.

Fear of further chaos in the House of Commons and in the courts as Brexit day is getting closer caused speculation that the pound would suffer early in the week.

However, these three developments change the picture in favor of sterling bulls.

1) Boris Johnson asks for an extension

Reluctantly, only to comply with the Benn Act, without signing the letter – and attaching another one explaining why a delay is adverse for all sides – the PM asked for an extension. While the Brexit-supporting media focus on Johnson's fight and the opposition criticizes his "childish games" – markets will likely disregard these details. 

Johnson previously said he "would rather die in a ditch" than postpone Brexit – but he did it. The bottom line is that the UK did its part in preventing a hard Brexit – and that is good news for GBP/USD.

What will the EU do? European Commission President Donald Tusk acknowledged the letter and Chief Negotiator Michel Barnier updated diplomats on the developments. The decision is up to the leaders of the countries, not the Brussels bureaucracy. While French President Emmanual Macron has been critical of further delays, the EU will likely go along – but with a postponement of its own.

The leaders will likely allow several days for the UK parliament to pass all the relevant motions. If they fail, an extraordinary EU Council Summit will likely approve an extension. That may take place at the end of the month.

And what will the House of Commons do?

2) Growing support for Johnson's deal

Since the EU and the UK announced their deal, several hardline Brexiteers have come out to support the accord. Out of the 28 "Spartans" – that voted down former UK PM Theresa May's deal three times – most are now on board with Boris' Brexit. Some support it due to its harder/cleaner nature – allowing Great Britain to strike its own deals. Others may fear that voting it down may lead to losing Brexit.

On the other side of the Conservative Party, the "rebels" are also mostly on board. Former Tories who have been expelled after they voted for the Benn Act, are also coalescing around support. The list includes Letwin – that frustrated Johnson. Most say they want to respect the results of the 2016 EU Referendum – and just want to prevent a no-deal exit. Several Labour MPs from constituencies that voted overwhelmingly to leave the EU are also coming around to supporting the accord. 

Will it be enough? Number-crunchers in various media outlets differ on the outcome, but all seem to agree that the PM has momentum and that squeezing the deal through is possible. That is a change positive change of tone from the initial response.

The pound dropped after the Northern Irish Democratic Unionist Party (DUP) rejected the accord. And it may advance now, as apparently, there may be a pathway to approval without the party's ten MPs. Having a Brexit deal approved provides certainty. 

3) Second referendum? 

Outside parliament, a massive protest supporting a "People's Vote" took place. Demonstrators were heartened when the House passed the Letwin amendment, but a road to overturning Brexit still seemed far. As mentioned earlier, support for the deal is growing. 

However, the delay in the Meaningful Vote on Brexit due to the government's decision to end the session after the amendment passed, opens the door to new such changes. One suggestion is to demand a customs union – practically changing the deal and returning negotiators to the table. Such a move has low chances of passing. 

However, an amendment to force a "Confirmatory Vote" on the deal is gaining traction. Such a change would mean that parliament approves Johnson's Brexit deal on the condition that the people approve it in a referendum. The two options on the ballot would be either the PM's accord or remaining in the EU. 

Keir Starmer, the shadow Brexit secretary for Labour, has told the BBC's Andrew Marr that if such an amendment is passed, the party may back Johnson's deal. Shadow chancellor John McDonnell also supported such a modification on another Sunday show. Party leader Jeremy Corbyn has yet to echo Starmer's words, but he has also been warming up to a referendum. 

The DUP is a wildcard in such an amendment. The party supports Brexit but rejects the PM's deal – which endangers the union in its opinion. Will they take another step and support an option to remain over Johnson's deal? That may be far, but everything seems possible in British politics. 

Earlier this year, parliament had a series of "indicative votes" and one supporting another plebiscite failed by only a handful of votes. Will it pass this time around? Will the Conservative Party then support Johnson's deal despite such an amendment? These are open questions. 

Nevertheless, the growing chances of a referendum – despite from a low spot – is another pound-positive factor. The best option for markets is canceling Brexit altogether. 

Conclusion

The weekend's political developments – which initially seemed negative for sterling – are now turning in its favor. The extension request, growing support for the deal and for a second referendum, are all positives. 

 

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