After the UK Parliament took control of Brexit on Monday, the pound sterling stabilised at around USD 1.32, showing that all options remain on the table. Investors are buying short-term protection against a depreciation of the pound: 1-week implied volatility rose to 16%, while the 25-delta risk reversal measure eased to -1.44% from -0.30 a week ago. In equity markets, reaction was similar with the Footsie edging up 0.02%. Overall, the UK outlook has barely changed: Brexit needs to be addressed!
Prime Minister Theresa May lost control of Brexit on Monday, when Parliament voted (329 versus 302) to grant itself votes on a series of alternative solutions, ranging from leaving without a deal to holding a second referendum. Given that most parliamentarians are in the “remain” camp, the worst that can happen is a soft Brexit. We won’t be surprised if Parliament pushes for a second referendum. It wouldn’t be the first time that a country’s initial decision about the EU is not respected (see France’s and Netherland’s rejection of the EU constitutional treaty in 2005).
