Pound advances after Johnson’s ‘defeat’ dims no-deal Brexit risk

Bloomberg

The pound rallied 1 percent and gilts slid as investors saw a lower risk of a no-deal Brexit following a defeat for the government in parliament.
Sterling led gains among Group-of-10 peers and UK stocks also gained as lawmakers were expected to vote on Wednesday to force Prime Minister Boris Johnson to delay Brexit by three months. Johnson retaliated by calling for a general election, though he will need two-thirds of the House of Commons to vote for it and he has already lost his parliamentary majority.
“Sterling has managed to recover some ground against the euro and the dollar as investors price in less probabilities of a hard Brexit, or just take some profits on their pound shorts,” said Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole SA. “Johnson’s plan of taking the UK out of the EU with or without deal on October 31 becomes quite unlikely.”
The UK currency has fallen since Johnson took power but clawed back some of the move this week after lawmakers took the first step towards forcing another Brexit extension.
The opposition Labour party said it will not support Johnson’s call for an election until the Brexit delay is enshrined in law.
The pound jumped as much as 1.2 percent to $1.2220, in its second day of gains, and strengthened 0.7 percent to 90.22 pence per euro. The yield on UK 10-year government bonds gained 10 basis points to 0.50 percent.
The FTSE 100 rose 0.4 percent, with domestic-oriented shares such as retailers advancing.
Even data signaling that the UK could be on course for its first recession since the financial crisis didn’t dim the rally, after the services industry became the latest leading indicator to miss estimates.
Traders were expected to contend with a spending statement from Chancellor Sajid Javid on Wednesday.
Then, Bank of England Governor Mark Carney will testify in front of the Treasury Select committee, followed by lawmakers putting forward a draft law in Parliament that would force Johnson to delay Brexit until Januart 31.
The pound could see further gains should the extension pass and attempts to stall that through an early election fail, said Jeremy Stretch, head of Group-of-10 currency strategy at Canadian Imperial Bank of Commerce.
“There is scope for shorts to squeeze in the process, taking out the pound slide from late July.”