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Pound hovers at 5-month highs ahead of crunch Brexit deal vote

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
A television broadcast showing Britain's Prime Minister Boris Johnson during a news conference after agreeing on the Brexit deal is pictured at Frankfurt's stock exchange on October 17, 2019. Photo: REUTERS/Ralph Orlowski

The pound was hovering near five-months highs against the euro and dollar on Friday morning, ahead of a crucial vote on Boris Johnson’s new Brexit deal over the weekend.

MPs will on Saturday vote whether to approve the new Brexit deal struck by Prime Minister Boris Johnson. The vote will decide whether Britain leaves the EU by the current 31 October deadline. If the bill fails, Johnson will be legally bound to write to Brussels asking for an extension to the timetable, although both sides have expressed reluctance about a further delay.

The outcome is the only thing on the minds of investors in UK assets. Sterling was trading at its highest levels since mid-May on Friday at 8.15am UK time. The pound was flat against the euro at €1.1574 (GBPEUR=X) and down 0.1% against the dollar to $1.2873 (GBPUSD=X).

The pound is trading against the dollar at levels not seen since mid-May. Photo: Yahoo Finance UK

The multi-month highs came despite growing fears that Johnson’s new deal will be rejected by parliament. The leaders of all major opposition parties came out against the deal shortly after it was announced on Thursday.

READ MORE: The biggest issue at the heart of Boris Johnson's Brexit deal

Labour shadow chancellor Johnn McDonell told the BBC on Friday morning: “It’s a very bad deal we can’t support it.” He said Labour MPs would face a three line whip, meaning they will be compelled to vote against the deal.

Sammy Wilson MP, the Brexit spokesperson for Northern Ireland’s Democratic Unionist Party (DUP), told BBC Radio 4’s Today Programme: “I can give you absolute assurance we will not be voting for this deal when it comes before the Commons tomorrow.”

The DUP’s support for the deal is crucial, as the ruling Conservative Party does not have a majority in the House of Commons. Without DUP support, the government will be relying on opposition rebels voting against their own parties in support of the deal.

“The PM must be hoping that more Labour MPs, in addition to the five that backed Mrs. May’s deal along with the three former Labour independents, will have a change of heart,” wrote Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, in a note sent to clients on Thursday.

“Reportedly, about 20 Labour MPs are considering backing the deal, fearing that otherwise they will lose their seats in a pre-Brexit general election. The number of Labour MPs prepared to support Brexit, however, has been consistently over-estimated over the last year.”

Tombs predicted Johnson would fall short by 15 votes. Betting markets are also pricing in a defeat.

READ MORE: High drama on Brexit sparks volatility for pound

Analysts at Deutsche Bank and ING said that, although the deal is likely to fail, the sheer fact that a deal has been struck is good news for the pound. Both argued that a hard Brexit now looks less likely.

“The reason we think that tomorrow’s vote is less important to the pound than the striking of the deal itself is that all the major UK parties now support either a second referendum which is unlikely to have no deal on the ballot paper (Liberal Democrats, Labour, SNP), or a concrete deal with the EU (Conservatives),” Deutsche Bank’s chief strategist Jim Reid wrote in a note sent to clients on Friday.

Still, analysts said the outcome of Saturday’s vote would likely lead to volatility for the pound. UBS said last week that a “benign deal” could see the pound climb as high as $1.35, while a rejection would likely send the pound lower.

“The next move in GBP hinges on the UK parliament vote this weekend,” Petr Krpata, ING’s chief European foreign exchange strategist, wrote.