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Pound climbs as Boris Johnson's Brexit bill passes

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Britain's Prime Minister Boris Johnson and Chancellor of the Exchequer Sajid Javid attend the debate on the Queen's Speech in the House of Commons Chamber, in London, Britain December 19, 2019. Photo: ©UK Parliament/Jessica Taylor/Handout

The pound extended gains on Friday afternoon as Boris Johnson’s Brexit withdrawal deal passed easily through parliament.

MPs voted 358 to 234 to approve the EU withdrawal bill. It means the UK is now set to officially exit the EU on January 31 next year, bringing some certainty to a convoluted process that has left many investors and traders wary of backing the pound.

Sterling had been rising against both major pairings ahead of the vote and cemented gains afterwards. Sterling was up 0.6% against the euro to €1.1764 (GBPEUR=X) shortly after the result. The pound was up 0.2% against the dollar to $1.3039 (GBPUSD=X) at the same time.

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However, the rise may be more a ‘dead cat bounce’ rather than an endorsement of the withdrawal bill.

“Sterling is on track for its worst weekly performance in two years, with declines in excess of 2% seen against all its major peers,” said David Cheetham, chief market analyst at trading platform XTB said.

The withdrawal bill includes a clause making it illegal for a government minister to delay or extend the Brexit timetable. That means the UK and EU will have just 11 months to work out a free trade agreement or face another ‘cliff edge’ in December 2020.

News of the amendment first broke earlier this week and sparked a sell-off for sterling that lasted for much of the week. Friday’s rise is a recognition that the sell off may have been somewhat overdone.

“As of February, the UK will enter a transition period where everything remains the same as it is today, but this phase will only last 11 months,” said Dean Turner, a UK economist at UBS Wealth Management.

“The final relationship with the EU still has to be negotiated during this time – a feat which seems ambitious, to say the least. It may be feasible if the prime minister is willing to accept an off-the-shelf deal or a bare-bones one.”