The British pound remains one of the most dynamic assets in the FX market. Just yesterday, the GBP/USD pair traded within the 282-point range, which indicates market nervousness amid the buzz around Brexit. Market sentiment remained uncertain as the British Prime Minister Theresa May suffered another crushing defeat in the House of Commons attempting to get enough votes on her Brexit deal. Besides, investors need to buckle up for another volatility spike ahead of the next Brexit stage.
MPs will be voting on a “no deal” Brexit today to decide if the UK should withdraw from the European Union without an agreement on trade. If “hard” Brexit gets rejected, another vote will take place on Thursday, March 14, to request a delay to the current Brexit date of March 29. It should be noted, that it’s not the first time when the Government fails to convince the House of Commons to agree to the Brexit conditions proposed by Brussels. In early 2019, MPs also voted against the draft deal, later approving two amendments to the Brexit bill. In particular, the MPs demanded to reopen the text of the withdrawal agreement to remove the backstop entirely - a controversial protection mechanism designed to prevent the physical border between Northern Ireland and Ireland.
Another one of May’s fiasco raises the question of her ability to drive Britain through Brexit and make sure that the country preserves its access to the single European market and Customs union. The general political uncertainty in the next few days can be exacerbated by the potential but absolutely real chance of Theresa May’s resignation. In this scenario, the pound sterling runs the risk of facing additional losses, which can be more than 5%. Besides, a possible delay of Brexit doesn’t guarantee that the two houses of Parliament will be able to reach consensus regarding the terms of the UK’s withdrawal from the EU.
Growing political uncertainty is an excellent environment to sell GBP/JPY. Weak sterling will face additional pressure from a safe-haven Yen, traditionally used as a backup currency at times of political and economic turmoil. Decline target for the GBP/JPY is located at 140,50 support. Taking that the pair is now trading around 146,50, potential growth of 4% should take less than a month.