Pound rallies to four-week high on possible Brexit delay

The pound rallied to a four-week high on Tuesday following reports that Britain’s impending departure from the European Union could be delayed.

Sterling, which has been a barometer of Brexit since the 2016 referendum, rose 0.42% to 1.315 versus the US dollar, reaching its highest level since the end of January.

Against the euro, the pound grew 0.44% to 1.157.

The British currency was buoyed by news that Prime Minister Theresa May could delay Britain’s March 29 exit from the bloc and is to propose formally ruling out a no-deal Brexit to her Cabinet, according to The Sun.

The move could postpone Brexit by weeks or months if Parliament does not back her deal.

Parliament has been deadlocked over Brexit after MPs rejected Mrs May’s EU withdrawal agreement last month.

The pound was also lifted by news that Labour has shifted its position and is backing a second referendum on Britain’s membership of the EU in the wake of several MPs quitting the party.

Michael Brown, senior analyst at payments firm Caxton FX, said: “The pound’s gains are a result of markets beginning to price in an extension to the Article 50 negotiating period, with reports this morning that the Prime Minister is set to discuss the matter with Cabinet before laying a motion in the (House of) Commons this afternoon.

“Though a delay is simply pushing back the exit date, and doesn’t solve anything itself, markets are taking solace in the fact that such a move would delay a ‘cliff-edge’ no-deal scenario.”

He said a confirmation of the delay would likely strengthen the pound further in the near-term but noted that political headwinds remain, such as a possible second referendum.

Lukman Otunuga, research analyst at currency brokerage FXTM, said Britain risks being trapped in a “Brexit limbo” by extending Article 50.

“While the pound has scope to extend gains on Brexit delay expectations, the medium to longer term outlook remains blurred by a thick cloud of uncertainty.

“With the odds of a second referendum also rising after Labour leader Jeremy Corbyn made a U-turn to back the move, another question floating in the air is whether there will even be a Brexit,” Mr Otunuga added.