(Bloomberg) -- The pound declined in Asia trading as investors start to weigh a worst-case Brexit after Prime Minister Theresa May’s bill was roundly defeated by lawmakers.
Sterling slipped 0.3 percent to $1.2829, while also dropping against every Group-of-10 peer, with traders saying flows were thin as most investors stayed on the sideline. While May is expected to survive a vote of no confidence called by the opposition party later Wednesday, uncertainty over how she will pull together a new deal has spurred risk aversion.
“Tuesday night’s vote may have increased the chances of a second referendum but it also increased the chances of a no deal Brexit –- both tails are now a bit fatter and GBP volatility has risen accordingly,” said Sue Trinh, head of Asia FX strategy at Royal Bank of Canada in Hong Kong.
The pound has lost around 13 percent against the dollar since the day before the U.K. voted to leave the European Union in June 2016 amid fears that the departure would hurt the country’s economy. Bank of England governor Mark Carney has said that a no-deal outcome could lead to a quicker pace of rate hikes to control inflation.
The opposition Labour party has said that all options, including campaigning for a second referendum, remain on the table if there isn’t a general election. That would be the best case for sterling, boosting the currency to $1.35, according to a survey of analysts. The worst case -- leaving with no deal -- would see the pound drop to $1.15.
“The question now, assuming Labour fail, is whether they now default to a second referendum as party policy,” said Adam Cole, chief currency strategist at RBC Europe Ltd. “That should be clear within a couple of days.”
Here’s a selection of analyst views:
Columbia Threadneedle (Not seen the worst)
National Australia Bank (Low to mid $1.30s)
Credit Agricole (PA:CAGR) (Labour win unlikely)
Eurizon SLJ Capital (Pound undervalued)
Amplifying Global FX Capital (Pound positive)
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