Pound plunges as Johnson restricts UK Parliament over Brexit

The British pound tumbled Wednesday after Prime Minister Boris Johnson limited Parliament’s ability to head off a no-deal Brexit.

In his boldest move yet to take the country out of the European Union with or without a divorce deal, Johnson set October 14 for the Queen’s Speech – the formal state opening of a new session of parliament that is proceeded by a suspension of the House of Commons. 

The queen agreed to the date, effectively shutting parliament from mid-September for around a month.

The move curtails the time available to lawmakers who want to prevent Johnson from taking the country out of the European Union without an exit agreement.

Johnson denied he was seeking to prevent parliament from obstructing his Brexit plans.

The announcement took the edge off a pound rally on Tuesday, when the currency touched a one-month high on news that opposition parties were thrashing out ways to block a hard Brexit.

“For the pound to recover [from] the fall this morning, anti-no- deal MPs will have to get their acts together in the first weeks of September,” said Jordan Rochester, a currency strategist at Nomura, raising the odds of a no-deal Brexit to 44 percent versus 40 percent earlier.

Sterling dropped to a six-day low of $1.2156 and was trading 0.6 percent lower by 1100 GMT. It weakened to 91.265 pence against the euro, its lowest level in nearly a week.

Brexit-sensitive stocks traded lower. EasyJet and International Airlines Group, the owner of British Airways, slumped two percent to four percent, while housebuilders such as Persimmon and Taylor Wimpey were down two percent.

The internationally oriented FTSE 100 index, however, was buoyed by sterling’s weakness.

As investors flocked into safer assets, British 10-year Gilts rose, pushing yields to their lowest in more than a week. Yields move inversely to bond prices.

Sterling’s decline may have been tempered by bearish views on the British currency. Speculators had outstanding bets against sterling – so-called “short” positions – of some $7.028bn as of August 20, data from the Commodity Futures Trading Commission showed. That’s close to the levels held two and a half years ago.

Implied sterling-dollar volatility, a gauge of expected price swings, has surged to the highest since January, contrasting with other developed-market currencies, where volatility remains subdued.

The pound has lost 4.3 percent of its value against the dollar this year, but most investors are wary of buying it back just yet.

“Sterling is cheap, so we’re primed to increase our sterling exposure, but we won’t do that until we get some clarity on a no-deal or deal,” said Rory McPherson, investment director at Psigma Investment Management.