UK: Supreme Court ruling has only limited impact on the pound - MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the pound remains on a stronger footing in the near-term as it continues its modest rebound following last week’s Brexit speech from UK PM May.

Key Quotes

“Pound short positions were built up early this year which could now be scaled back if the pound continues to defy expectations for renewed weakness. Simply the absence of fresh fundamental triggers to justify further weakness could encourage pessimism towards the pound to ease further.”

“The Supreme Court’s verdict yesterday that parliament should be involved in triggering Article 50 was a further supportive development for the pound in the nearterm. The defeat for the government was widely expected which has helped to limit the initial market impact. Our view remains that the market welcomes greater parliamentary involvement in the Brexit process which could help to reduce the risk of a less favourable outcome.”

“However, we do not expect the ruling to significantly alter the time frame for triggering Article 50. It has been reported that PM May will this week publish a concise bill to give her full authority to trigger Article 50. The plan is to push the bill through both the House of Commons and House of Lords by the middle of March which would allow Article 50 to still be triggered before the end of March.”

“We do not expect the bill to face sufficient opposition in parliament to prevent it from passing. The bill could be subject to amendments including a requirement for the government to produce a policy document setting out their negotiating strategy, and other potential steps which would allow greater parliamentary involvement during the negotiations. However, we do not expect the government to significantly alter their Brexit plan outlined in PM May’s speech last week.”