Pound rises against euro as Brexit deadline delayed, but no-deal risk increases

Sterling gains 0.7% against the single currency as Theresa May staves off cliff-edge EU exit by two weeks

The pound soared against the the euro on Friday after news that Theresa May had staved off an imminent no-deal Brexit by agreeing a short extension to Article 50 with the EU.

The prime minister now has an additional two weeks to devise an alternative Brexit plan if her deal fails to be voted through next week.

The UK will now stay in the EU until 12 April if the withdrawal agreement is rejected by MPs for a third time. If Ms May manages to win the backing of MPs the UK can remain in the bloc until 22 May.

Sterling gained 1.4 per cent against the European single currency to €1.168 and 0.8 per cent against the dollar to $1.319. Sterling also rose against the swiss Franc but was down marginally against the Japanese yen.

Some of the currency movement was driven by disappointing economic data from the US and Europe rather than strength in the UK.

The pound was boosted despite some analysts forecasting that the prospect of a no-deal Brexit had actually increased after the extension announcement.

Goldman Sachs analysts increased their estimated likelihood of the UK crashing out of the EU to 15 per cent from 5 per cent and cut the chances of MPs voting through Theresa May’s deal to 50 per cent from 60 per cent.

“By postponing Brexit day by at least a fortnight, the UK and the EU have kept all options in play, for now,” Goldman said.

Connor Campbell, marketing analyst at Spreadex, said “sterling started Friday’s session in something akin to recovery mode, Thursday’s Brussels ballyhoo just about taken as a positive

However, the rise “barely took the edge off of the losses incurred in the last couple of days” he said.

Hussein Sayed, Chief Market Strategist at FXTM said: “Despite the chances of exiting without a deal having risen significantly, traders do not believe that this is the base case scenario.

“Sterling remains the top performing major currency in 2019 and has been stuck in the range of 1.30 – 1.33 against the dollar in March.

“The UK parliament may no longer kick the can further and should come up with a decision before 12 April.”

This is likely to lead to volatile moves in the pound he said.