Brexit: Stop trading pound sterling ahead of vote on Theresa May's deal, top bank tells clients

Volatility in the currency is expected to spike following the vote, making trading decision very risky

Caitlin Morrison
Tuesday 15 January 2019 09:24
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What moves currency markets?

A top bank has advised its clients to stop trading the pound in the run-up to a vote on Theresa May’s Brexit deal on Tuesday, because of the volatility expected in the event that the prime minister is defeated.

MPs are widely expected to vote against the deal, including 100 of Ms May’s own MPs, which is likely to cause a drop in sterling.

However, traders have warned that more volatility lies ahead as the consequences of a rejection of the deal are uncertain.

With huge swings in the pound likely in the aftermath of Tuesday’s vote, Citigroup has advised its high net worth clients to avoid trading sterling in the short term, according to a report by Bloomberg.

The bank has predicted that the pound could drop by as much as 10 per cent against the dollar, or rise by a similar amount if there is an unexpected positive result for Brexit.

“Over the next 24 hours what all we’re going to find out is the degree to which May loses, how much she loses by,” David Bailin, global head of investments at Citi Private Bank, said at a briefing on Tuesday morning. “That is not something that one actually trades on.”

The bank’s chief investment strategist, Steven Wieting, said it was impossible to make a call as to how the pound will move following the vote, given that “if we had the members of parliament and Theresa May and the Europeans all here, they wouldn’t know how it’s going to work out”.

“Be relatively cautious about taking risk on that particular exchange rate,” he warned.

Hussein Sayed, chief market strategist at FXTM, said a narrow loss for May could be positive for the pound, as it would give the PM a window to attempt to push through a revised deal.

However, he added: “A loss by a wide margin will make it tricky for Sterling traders as the bill will be rejected due to different ambitions. Conservative MPs want concessions that are hard to get from Brussels, meanwhile, hardcore remainers want to reject the deal in the hope that they get a second referendum.

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“This may lead to two extreme outcomes: either a hard Brexit or no Brexit at all. However, given all the uncertainty towards such a scenario, investors may sell the currency and assess the situation later, leading to high volatile moves in the pound.”

John Allan, president of the Confederation of British Industry, said on Tuesday that a failure to agree on a Brexit deal would do “irreparable harm to the UK economy”.

He said the country needed “very, very, clear leadership from the government” and warned that if the deal is rejected: “This will be a situation of national emergency. We are only 70-plus days from crashing out of the EU.”

On Tuesday morning, the pound was trading at $1.2884 and €1.1236.

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