Yesterday evening was a total disaster in the House of Commons. After hours of discussion, MPs passed on all eights Brexit alternatives put to vote. As expected the “no deal” plan B didn’t receive much love (160 for and 400 against), just as the “revocation to avoid no deal” (184 versus 293). The “confirmatory public vote” is the one that was views more favourably but it was still short of 27 votes (268 versus 295). The “customs union” with the UE was also one of the most popular, but unable to get the majority for approval. The results suggested that the Tories would rather leave without a deal, which also suggests that any replacement for Theresa May should be a harder Brexiter than the current Prime Minister. Theresay hasn’t decided yet whether she’ll put her deal to vote one more time before the end of the week. After two rejections, it would most likely suffer a similar fate, even though she promised to resign should the deal passes.
GBP/USD has been trading in a volatile range since the beginning of the week. Starting I late European session yesterday, the cable fell roughly 1% to 1.3140 and has been grinding slightly higher since then. Looking at non-commercial positioning data from last week, as reported by the CFTC, we notice that speculators were reluctant to play the Brexit game as they mostly stayed out of the market. In the option market, 1-week ATM implied volatility rose slightly to 15.41%, while the 1-week 25-delta risk reversal measure eased slightly to -1%, which suggests that puts have more in demand that call contracts. The situation is also impacting safe haven currency pairs as the prices of put options on USD/JPY have rose compared to call options. Surprisingly, the ones on the Swiss franc have moved in the opposite direction, which may suggest that Switzerland may not be able to avoid the damages from a hard Brexit on the EU economy.
