Pound Holds Steady as U.K. Government Wins No-Confidence
Comment of the Day

January 16 2019

Commentary by Eoin Treacy

Pound Holds Steady as U.K. Government Wins No-Confidence

This article by Charlotte Ryan for Bloomberg may be of interest to subscribers. Here it is in full:

With May successfully seeing off the immediate threat to her government, she now has to turn her attention to plan B, which could involve bringing the divorce deal back to another vote. She invited rival parties to start talks following the Wednesday vote.

“The pound fallout should be contained as the prime minister is safe from a leadership contest,” Kamal Sharma, head of Group-of-10 currency strategy at Bank of America, wrote in a note before the confidence vote. “There is scope for sizable pound appreciation once the political risk premium is priced out.”

The U.K. currency has weakened about 14 percent since the result of the June 2016 Brexit referendum, and analysts in a Bloomberg survey see scope for a rally to $1.34 if a divorce deal is finally agreed on.

Eoin Treacy's view

There are three primary interested parties in Theresa May’s new appetite for cross party talks. Some Conservatives want no deal but the majority do want a deal. The Labour Party wants to be in power so it will not endorse a fresh referendum while there is any chance the government will fall; triggering a general election which it hopes to win. The smaller Liberal Democrats, Scottish Nationalists and Plaid Cymru want a second referendum which they believe the Remain side will win. Meanwhile Theresa May probably still wants her deal to make its way through Parliament.

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