Above: Tusk, Johnson on the sidelines of the UN General Assembly. Image courtesy of Number 10 Downing Street, Gov.UK
– Supreme Court rules Govt. was wrong to suspend parliament
– Any volatility in Sterling to ruling tipped to be short-lived
– Johnson to meet Ireland’s Varadkar in New York today
– Brexit negotiations yet to reach a breakthrough
– Expect currency traders to adopt wait-and-see approach to Sterling
The British Pound was seen going higher against the Euro and U.S. Dollar following the unanimous Supreme Court’s finding that the UK government was in breach of its power in shutting down Parliament.
The findings suggest Parliament will be able to sit sooner than the October 14 date currently timetabled, leading markets to believe MPs can get back to work in preventing Prime Minister Boris Johnson from taking the UK out of the EU without a deal on October 31.
As a result “proroguation is null and of no effect,” said Supreme Court President Hale. It is now up to the Speaker of the House of Commons and Lord Speaker of the House of Lords as to when Parliament can sit once again.
“Whilst there is significant headline risk from this event, it’s hard to see how it materially alters matters vis-a-vis getting a deal or not. However, the market and the algos will likely see a ruling against the government as Sterling-positive, and one in its favour as Sterling-negative. Any rally or drop is likely to be faded,” says Neil Wilson, Chief Market Analyst at Markets.com.
Following the news, the Pound-to-Dollar exchange rate is quoted at 1.2460, having been as low as 1.2440 earlier in the day. The Pound-to-Euro exchange rate was quoted at 1.1340, having been lower than 1.13 ahead of the decision.
“Boris Johnson is coming under increasing political pressure, and so is his strategy. For the time being, this is good news for the British Pound,” says Marc-André Fongern, analyst at MAF Global Forex.
The House of Commons could sit as soon as tomorrow according to experts. “As the embodiment of our parliamentary democracy, the House of Commons must convene without delay. To this end, I will now consult the party leaders as a matter of urgency,” House of Commons Speaker John Bercow said in a statement released by his office.
But, from a currency market perspective, it is arguable that Parliament has already done all it can to prevent a ‘no deal’ Brexit, and giving MPs additional time to sit might not actually shift the landscape a great deal.
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For us the significant developments for Sterling will come out of EU-UK negotiations which have offered the currency some further upside impetus over recent days.
The ‘mood music’ from the EU side has certainly improved, with the EU agreeing to reopen negotiations and agree to the UK’s demands to have the issue of the Northern Ireland border ‘backstop’ replaced by alternatives.
On the sidelines of the ongoing UN General Assembly Johnson told European Council President Donald Tusk that movement and flexibility were needed from the European Union if a Brexit deal is to be reached, a British government spokeswoman said.
Johnson and Tusk discussed progress in talks between the EU and UK on finding an alternative to the Irish backstop, the spokeswoman said.
“The prime minister emphasised that in order to secure a deal we will now need to see movement and flexibility from the EU,” she said, adding that the leaders had agreed to keep in touch over the coming weeks.
Following the meeting, Tusk said there was “no breakthrough,” but neither was there a “breakdown” and that there remains “no time to lose”.
Irish Taoiseach Leo Varadkar is set to meet Johnson on Tuesday, and said on Monday he would not accept “any halfway house” short of legally binding assurances on the Irish border according to RTE.
Varadkar told journalists his message for Johnson “is the message (that it has been) all along: the bottom line is that we need a legally binding assurance of no hard border, and the all-island economy can continue … we won’t accept any halfway house,” Virgin TV News reporter Gavan Reilly tweeted.
Negotiations between the two sides are ongoing, with UK Brexit negotiator Stephen Barclay repeating the need to reach a deal that excludes the ‘backstop’, saying his government needs an agreement Parliament would pass.
Speaking in Prague after meeting the Czech interior minister, Barclay also said his country was committed to leaving with a deal because doing so without one would be disruptive.
“The teams are meeting again this week because both sides recognise that is in both interests to secure a deal. So that is what we are working on but it has to be a deal without the backstop,” Barclay said.
However, the EU’s chief negotiator Michel Barnier said on Monday it was difficult to see a way to break the Brexit impasse as Johnson’s demand to drop the backstop was unacceptable.
“I am sure you understand this is unacceptable,” Barnier said of dropping the backstop, during a news conference in Berlin alongside German Foreign Minister Heiko Maas.
EU sources said no proper alternative for the border between Northern Ireland and Ireland that ensures the integrity of the EU single market and customs union has been proposed yet by the UK.
“Based on current UK thinking, it is difficult to see how we can arrive at a legally operative solution which fulfils all the objectives of the backstop. It is in a very sensitive and difficult phase,” said Barnier.
What is clear is that negotiations are ongoing, and there is political will.
Foreign exchange traders are likely to adopt a wait-and-see approach to Sterling in the current environment, and it is therefore probably not surprising to note that the Pound is trading close to the mid-point of a long-term range against the Euro.
We expect more of the same until some real clarity emerges.
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