Brexit vote: Pound slumps against dollar and euro as Theresa May's deal hangs by thread

Sterling falls sharply after attorney general says legal risk of indefinitely remaining in Irish backstop is unchanged, despite prime minister's assurances

Ben Chapman
Tuesday 12 March 2019 13:31
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What moves currency markets?

The pound slumped on Tuesday after the government’s top lawyer warned that the UK could still be trapped in the “Irish backstop” despite assurances on the Brexit deal from Theresa May.

Sterling fell almost 1 per cent against the dollar and the euro as Attorney Geoffrey Cox’s dealt a hammer blow to the prime minister’s hopes of winning a crucial Commons vote on Tuesday evening. The pound slipped to $1.30 and €1.16 after Mr Cox released his legal assessment ahead of an appearance in parliament.

The falls more than erased previous gains made by the British currency on Monday after Ms May claimed to have secured “legally binding” assurances from the EU that that the backstop could not continue indefinitely.

Sterling had rallied towards a 22-month high of €1.18 on Monday night, and approached the $1.33 mark against the dollar.

But Mr Cox’s statement that the UK would still need EU agreement to be released from the backstop triggered a sharp sell-off of the pound.

In his official legal advice, Mr Cox wrote that if both sides deploy ”the necessary diligence, flexibility and goodwill” that both sides are now legally bound to show, it would be “highly unlikely” that the backstop would come into play.

But he went on: “However, the legal risk remains unchanged that if through no such demonstrable failure of either party, but simply because of intractable differences, that situation does arise, the United Kingdom would have, at least while the fundamental circumstances remained the same, no internationally lawful means of exiting the Protocol’s arrangements, save by agreement.”

The advice makes it extremely unlikely that Ms May’s Brexit deal will be voted through by MPs, and means leaving the EU with no deal would remain a possibility.

Crashing out of the EU with no deal would likely cause a significant reduction in the purchasing power of the pound as investors become more pessimistic about the future of the UK economy.

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