Brexit vote: Pound value will jump if MPs reject no-deal outcome, analysts predict

The pound is likely to make big gains if Brexit deadlock is broken in parliament this week but its recent rally could come to an end if no-deal remains an option after a series of crucial votes in the Commons on Tuesday.

Analysts predict that if Theresa May’s “Plan B” deal is approved, sterling could rise more than 10 per cent to $1.45 from $1.31.

The pound has bounced 6 per cent since a rally began in early January on the back of speculation that chances of a disorderly Brexit have receded.

Markets will have a much clearer picture of how founded that speculation has been after MPs to vote on a number of amendments on Tuesday evening.

A cross-party amendment, led by Labour’s Yvette Cooper and Conservative Nick Boles is seen by a number of analysts as boosting the pound’s value in the short term.

It would extend Article 50 to the end of the year if no agreement has been reached, giving MPs power to come up with their own “Plan B”, effectively preventing a no-deal scenario, at least for now.

Given that crashing out of the EU will see sterling “drop like a stone” according to Naeem Aslam, chief market analyst at Think Markets, a vote in favour of Ms Cooper’s proposal is likely to have a positive impact on the pound.

“Cooper/Boles we think is small upside for the pound, as delay is always preferable to a forced decision,” Royal Bank of Canada’s chief currency strategist Adam Cole told Bloomberg.

A separate amendment designed to stop a no-deal put forward by Conservative minister Caroline Spelman and Labour’s Jack Dromey is also predicted to push the pound higher if it is passed.

“While we are no closer to a long-term solution for the pound, the outlook has brightened in the short term as it shows that very few lawmakers want to press the nuclear button, i.e. crash out of the EU without a deal,” Hans Redeker, global head of of FX strategy at Morgan Stanley told Reuters.

Sterling is already on track for its biggest monthly rise against the dollar in a year but remains significantly below where it was on the eve of the referendum. The pound is 12 per cent lower against the euro at €1.158.

“Political uncertainty plays a huge role in the stability of currency and exchange rates, and the last thirty-one months since the referendum has been a prime example of that,” said Ian Strafford-Taylor, chief executive of FairFX.