Letwin vote sends sterling lower

Weekend trading for the pound has seen traders react with disappointment over the passage of the Letwin proposal. This amendment raises the likeliness that we will see yet another extension, despite Boris Johnson’s claims that he would not support such an event.

For markets there are two factors in play here, with the beneficial effects of mitigating the potential for a no-deal scenario being overshadowed by the message this tells traders about Johnson's hopes of passing his bill. Much like his predecessor, Boris has grown used to rejection in Parliament, and with today’s Letwin vote seen as a proxy for the meaningful vote on his Brexit deal, markets are understandably treating this result with disappointment. The meaningful vote will likely take place this week, yet the failure to gain support from the DUP (Democratic Unionist Party) means that we are faced with another likely rejection and sterling decline. It has been clear that there is no majority in Parliament for anything other than opposition for a no-deal Brexit, and thus it is evident that Brexit could yet only occur once we have seen a general election.

A look at the weekend GBP/USD chart highlights the decline into 1.2750 support, which represents the low from Thursday. A break below that level would point towards further declines for the pound, which seem likely given the growing feeling that Johnson will fail when the vote is finally undertaken. For today, the question is whether we will see that level broken, as traders take stock amid a ‘Super Saturday’ that has been cut short.