The pound has come under selling pressure in the run up to Tuesday’s crunch Parliamentary vote on Theresa May’s Brexit deal.
Sterling was trading down over 1% versus the US dollar at 1.273 and shed 0.3% against the euro at 1.118 as MPs gear up to deliver their verdict on the Prime Minister’s Withdrawal Agreement.
However, the Government is headed for what looks like an inevitable defeat, and currency traders are preparing for more volatility depending on the magnitude of Mrs May’s humiliation.
If Parliament rejects the deal with a large majority, City Index’s Fiona Cincotta believes that the pound could tank further.
“Labour (will) look to call a vote of no confidence in Theresa May, pushing for a general election.
“Domestic political chaos, the prospect of a Labour government and on-going Brexit uncertainty would be a toxic combination for the pound, sending it back towards 1.20 US dollars and the post-Brexit-referendum lows,” she said.
“An extension of Article 50 seems almost inevitable at this stage. This would offer some support to the pound as investors see the risk of a no deal fading. How the pound moves thereafter depends not only on what Plan B is, but also Labour’s reaction.”
Neil Wilson, chief market analyst at Markets.com, said that whatever the outcome, traders should expect “considerable volatility” as news flow from Westminster dictates price action.
Number crunchers at ING have outlined a series of scenarios for the pound following the vote.
In the unlikely event that Mrs May’s deal passes, sterling will rally to 1.38 US dollars, according to the bank.
If a general election is called, which is also unlikely, the pound would plummet to 1.20 US dollars and if a Norway-type arrangement is agreed, it would rise to 1.35 US dollars.
A second referendum would see the British currency jump to 1.40 US dollars.
However, all three latter scenarios require an extension of Article 50.
If a no-deal hard Brexit comes to pass, then ING predicts sterling would tank to 1.12 US dollars and hit parity with the euro.
