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January 15, 2019 at 03:25 PM
The pound pared losses after Prime Minister Theresa May’s Brexit deal was roundly defeated by U.K. lawmakers, spurring speculation Britain’s exit from the European Union could be derailed.
Sterling was still on course to snap a two-day rally after May lost the vote 432 to 202, but erased more than half of the day’s drop. The government must now face a vote of no-confidence initiated by the opposition Labour Party on Wednesday.
The party’s leaders have said that if there is not a general election, all options, including campaigning for a second referendum, remain on the table.
“While we have bounced since, we struggle to get excited about sterling’s upside here,” said Ned Rumpeltin, European head of FX strategy at Toronto-Dominion Bank. “We could see some market participants begin to think that the next move will be in favor of a ‘No Brexit’ outcome, but there is still a lot of blue water between here and there.”
The best case for a majority of investors would be another poll on whether Britain should leave the EU, which would boost the currency to $1.35, while the worst case — leaving with no deal — would see the pound drop to $1.15, according to analysts surveyed by Bloomberg.
