Simon Derrick, the chief currency strategist at BNY Mellon, said pricing of pound indicates that Prime Minister Theresa May’s Brexit deal will not pass its first vote in the Commons. The pound euro exchange rate sharply rose on Thursday after details emerged this morning of a draft political declaration of future ties between the UK and the EU.
Sterling reached €1.130 against the euro upon the news breaking, according to data from Bloomberg, surging from as low as €1.120 earlier today.
Prior to the announcement, the pound had slumped against the euro after the failure to make a breakthrough in talks with European Commission President Jean-Claude Juncker.
Mr Derrick told Bloomberg News the pricing of the pound following the recent updates on Brexit has provided “useful little bits of evidence” to try and work out what the market is pricing it.
He said: “So, the leadership challenge. That’s starting to face and sterling has stabilised. We had talk a number of times of, of course, the last week with comments from Labour about the second election. John McDonnell was talking about that I think yesterday.
“Market barely reacted when he was talking about Labour not thinking there was a likelihood of a second election.
“When we talked about the second referendum and when that was pushed back there.
“Also, the market didn’t particularly react which suggests to me this is a market that doesn’t put a high likelihood on either a second referendum or an election.
“Therefore, it must be starting to think about one of two possible outcomes. Either we finally make the vote and get through on the deal where it currently stands, or there’s a hard Brexit.
“Now, I find it hard to believe, given how stable sterling currently is, that the market is seriously thinking about a hard Brexit. So it has to be the thing it can be pricing at the moment is the deal gets passed at some point.
“Now, the reason why I am struggling with that idea is one of the arguments that people seem to think is part and parcel against that second vote is that MPs will panic after the first round of votes because they think the markets will react adversely.”
Speaking after yesterday’s meeting with Mr Juncker, the Prime Minister said: “We have had a very good meeting this evening.
“There were some remaining issues which we have discussed, which I have discussed with President Junker this evening.
“We have been able to give direction to our negotiators on resolving those issues so further progress has been made.
“I will be returning on Saturday for further meetings, including again with President Junker, to discuss how we can ensure that we can conclude this process in the way which is in interests in all our people.”
A commission spokesman said: “Very good progress was made in the meeting between President Juncker and Prime Minister Theresa May.
“Work is continuing.”