The pound fell in Asia-Pacific trading on Monday after Prime Minister Boris Johnson was pushed to abort a crucial parliamentary vote on the UK’s withdrawal from the EU over the weekend, before being forced to write a letter to the bloc seeking an extension to the exit process.
In early trading in the region, sterling was as much as 0.6 per cent lower at $1.29. Sterling was also down 0.4 per cent to £0.8640 per euro.
The pound had surged almost 3 per cent versus the greenback last week as Mr Johnson struck a new deal with the EU on the UK’s upcoming divorce.
“It seems reasonable to us for [the pound] to give back some of these gains as now the prospects of an imminent deal have been reduced somewhat,” said Rodrigo Catril, a senior currency strategist at National Australia Bank in Sydney.
The prime minister was made to delay a so-called “meaningful vote” on his Brexit deal in the House of Commons on Saturday, in the first time parliament has sat on a weekend since 1982. That was after MPs voted by 322 to 306 to back a motion tabled by Oliver Letwin, former Tory cabinet minister, to put the vote on hold.
MPs felt that, without the Letwin amendment, there was a chance the UK could fall out of the EU with a no-deal Brexit on October 31.
In order to comply with a separate, earlier parliamentary amendment, Mr Johnson was compelled on Saturday to send a letter to Donald Tusk, president of the European Council, asking for a Brexit extension to January 31, 2020.
However, Mr Johnson did not sign the letter and it was accompanied by a statement from the prime minister telling Mr Tusk that he felt there was no need for an extension. But the EU considers the formal extension request to have been lodged by the government.
Mr Johnson on Monday is set to make a fresh attempt to win parliamentary backing for his deal amid growing confidence that he has the support of the 320 MPs needed to secure victory. The prime minister insists that the UK will still depart the EU by an October 31 deadline and currency strategists expect further pound volatility in the mean time.
“For now the best thing we can say is that we see limited GBP downside as the hard Brexit scenario at the end of the month has been averted. The maths on whether the prime minister can ruck enough support remain very tight,” said Mr Catril. Sterling “remains a sharp object to play with and should be treated with care.”