London, March 12: The pound tumbled Tuesday after the UK government's top legal advisor cast doubt on Prime Minister Theresa May's last-gasp changes to her Brexit deal, hours before a vital vote.
Sterling, which had been rising after May secured revisions to the Brexit withdrawal agreement, hit reverse after legal advice from Attorney General Geoffrey Cox.
Cox said last-minute new agreements “reduce the risk” of Britain being “indefinitely and involuntarily” held in the so-called Irish border backstop.
However, he also warned that “the legal risk remains unchanged” that Britain would have no legal means of ending the controversial backstop without the European Union's agreement.
In reaction, the pound slid to $1.3025 from $1.3143 just before Cox published his advice. The euro jumped to 86.40 pence from 85.75 pence.
Overnight, following news of May's hard-won EU concessions, sterling had struck a three-week peak at $1.3289, while the euro leapt to 84.76 pence per euro — a level last seen in May 2017.
– Nose dive –
“Sterling took a nose dive on the back of the Cox statement,” said ThinkMarkets analyst Naeem Aslam.
“It was his opinion which matters the most, now that he has made it clear that the recent deal has no weight, the door is wide open for the sterling to move lower.”
European stock markets mostly sank in early afternoon deals.
London was however buoyed by the weaker pound ahead of Tuesday's decisive parliamentary vote at 7:00 pm (1900 GMT).
“Cox's opinion casts doubts on whether a sufficient number of MPs will see sufficient change to back May's deal tonight. The pound has duly plunged,” Rabobank analyst Jane Foley told AFP.
However, she sounded a note of caution, noting that the pound remains the best performing G10 currency so far this year.
“Even if May's deal is not passed today, the market consensus remains of the view that a hard Brexit will be avoided and this view continues to provide underlying support for the pound.”
A favourable vote would clear the way for Britain to leave the European Union on March 29 — nearly three years after Britain backed withdrawal from the bloc in a referendum.
Failure could potentially leave the country crashing out with no deal, sparking shockwaves through global markets and possible question marks over May's leadership.
– Hopes extinguished –
“There's been a swift move lower in the pound … after the government's top lawyer failed to verify claims that the latest concessions from the EU amount to a legally binding guarantee on the backstop,” said XTB analyst David Cheetham.
“The bulk of Monday's gains have now been handed back and it looks like any hopes of an unlikely victory for the PM's deal later have just been extinguished.”
In a stunning rebuke in January, lawmakers had already overwhelmingly rejected May's Brexit withdrawal agreement by 432 votes to 202, forcing her to seek fresh concessions from Brussels.
“Despite last-minute concessions from the EU, Theresa May still has a mountain to climb,” added Eurasia Group analyst Mujtaba Rahman.
“To win today's vote, May needs to persuade 116 of the 230 MPs who voted against her last time to change their minds — a very tall order.”
Brexit hardliners — the Democratic Unionist Party (DUP) and the influential Conservative eurosceptic ERG group — object in particular to the agreement's “backstop” provisions on the Irish border, which they fear could lock Britain indefinitely into a customs union with the EU.
If the deal is voted down, MPs will Wednesday vote on whether Britain should simply leave on March 29 without any deal at all.
– Key figures at 1215 GMT –
- Pound/dollar: DOWN at $1.3073 from $1.3150 at 2100 GMT on Monday
- Euro/pound: UP at 86.15 pence from 85.50 pence
- Euro/dollar: UP at $1.1261 from $1.1245
- Dollar/yen: UP at 111.25 yen from 111.21 yen
- London – FTSE 100: UP 0.2 percent at 7,145.31 points
- Frankfurt – DAX 30: DOWN 0.2 percent at 11,516.78
- Paris – CAC 40: DOWN 0.3 percent at 5,250.44
- EURO STOXX 50: DOWN 0.3 percent at 3,295.35
- Tokyo – Nikkei 225: UP 1.8 percent at 21,503.69 (close)
- Hong Kong – Hang Seng: UP 1.5 percent at 28.920.87 (close)
- Shanghai – Composite: UP 1.1 percent at 3,060.31 (close)
- New York – DOW: UP 0.8 percent at 25,650.88 (close)
- Oil – Brent Crude: UP 34 cents at $66.92 per barrel
- Oil – West Texas Intermediate: UP 22 cents at $57.01