No new date set for crucial parliamentary vote
Currency markets were shaken by more Brexit drama on Monday, after a highly anticipated vote on Prime Minister Theresa May’s deal on the U.K.’s exit from the European Union was postponed.
The British pound GBPUSD, +0.1194% slid Monday morning and touched a 20-month low after May scrapped the Brexit vote scheduled for Tuesday. The prime minister also said that a deal that didn’t include the controversial backstop as a solution to deal with the Northern Irish-Ireland border was not available. While May is expected to seek to reschedule the vote, no date has been set.
Sterling dropped to its lowest since April 2017 while May was addressing the House of Commons, but bounced back from its low of $1.2507. The pound last bought $1.2562, down from $1.2731, its weakest since June 2017. The euroEURGBP, -0.0553% reached its highest since early September against the pound at £0.9098, and was last up 1.1% at £0.9042.
May’s Brexit plan had earned criticism from her own party, as well as other members of the British Parliament, for being to accommodative of the EU’s demands. Market participants had been questioning whether the PM would be able to get to votes needed to box the deal through.
May’s “latest move to call off tomorrow’s vote, makes logical sense, but she could see Labour and European Research Group work against her and keep the vote alive. Expectations were for PM May to lose the meaningful vote on the Withdrawal Agreement in the House of Commons,” wrote Edward Moya, market analyst at Oanda. “With the clock ticking down on the Tuesday vote, PM May knew a strong defeat would probably signal the end for her.”
The European Court of Justice — the EU’s highest court — ruled that London was able and allowed to unilaterally walk back on its decision to leave the EU. The court thus ruled in line with an opinion written by the advocate general last week.
Meanwhile, U.K. economic data didn’t look too rosy on Monday. Manufacturing production fell 0.9% in October, versus an expected 0.05% increase. Similarly, industrial production contracted 0.6% in October, compared with an expected 0.1% expansion.
The euro EURUSD, +0.0704% gave back some earlier strength against the dollar as May was speaking in the U.K. A hard Brexit isn’t thought to be positive for the eurozone either, though the U.K. would bear the brunt. The shared currency last fetched $1.1358, compared with $1.1387 late Friday in New York.
The ICE U.S. Dollar Index DXY, -0.10% benefited from the euro and sterling weakness and climbed 0.7% to 97.195.
The eurozone Sentix Economic Index earlier dropped to -0.3 in December. Investors were also looking at how the protests in France were developing, after Christine Lagarde, head of the International Monetary Fund, said over the weekend in a CBS interview that there was “no doubt” the protests would take an economic toll on France.
The Bank of France said Monday that the French economy will indeed grow more slowly than projected in the fourth quarter as violent protests have cut into key industries such as retail and transportation.
Later this week, the European Central Bank is due for its final monetary policy update of the year.