(08 JANUARY 2019)DAILY MARKET BRIEF 2:Pound rollercoaster restarts

Britain’s parliament is back from holiday, and next week the House of Commons is expected to debate and vote on the European Union Withdrawal Agreement. It seems clear that they will reject it, despite the effort made by Prime Minister Theresa May to receive concessions from Brussels and her talks with President of the EU Council Donald Tusk and President of the EU Commission Jean-Claude Juncker. Whither the pound? Probably a sharp drop following the vote; the next step will depend on whether the EU or the UK will provide a constructive solution thereafter. Short-term, we see a drop in GBP/USD to 1.2745.

No alternatives to PM May’s proposed deal have emerged so far. A disorderly Brexit (i.e. hard Brexit) would not be in the UK’s or the EU’s interest, so a preferred solution might be to extend the Brexit deadline of 29 March. This would ultimately allow both the EU and the UK to find a sustainable solution.+