PM May Faces EU Resistance For 3-Month Extension To Brexit, Pound Plummets

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Today, the value of Sterling plunged after the request of Theresa May, the British Prime Minister, to delay Brexit until the 30th of June faced resistance from parts of the European Union.

With no consensus in the British parliament over how to leave the bloc, May was forced to ask for an extension from the European Union beyond the scheduled departure date on the 29th of March.

The requested delay is shorter as compared to what is expected by some in the market and the prime minister said that a no-deal Brexit was still possible, keeping the traders of sterling on edge.

France then warned to reject the request of May unless she can assure that she can get her twice-rejected departure plans through parliament.

Markets have largely priced out the possibilities of a no-deal Brexit, however, the uncertainty regarding how and when the United Kingdom will leave the Europena Union, have capped any rally in the pound.

A document of the European Commission that was seen by Reuters said that the Brexit delay should either be several weeks shorter, to avoid a clash with the European elections that is scheduled this coming May or extend at least until the end of the year, which would oblige the United Kingdom to take part in the elections.

An analyst at financial advisory firm Arkera, Viraj Patel, said that the best hope for the sterling “is that May’s deal gets over the line” as it would reduce the uncertainty.

The pound slumped to as low as $1.3147 as investors are concerned about the European Union opposing the extension request of PM May. It dropped by almost 1 percent on the day before recovering to approximately $1.3170.

It had been trading around $1.3220 before PM May addressed parliament, having rallied to a 9-month high of almost $1.34 last week.

Against the euro, sterling dropped by 1 percent to 86.39 pence, the lowest since the 12th of March.

An extension, which will require the approval from the member states of the European Union, leaves the Brexit divorce with uncertainty, with options including leaving with the deal of PM May, a longer delay, a disruptive exit, or even another referendum.

Market volatility gauges in the pound continued to be firm even as other gauges, including the one-month euro volatility indexes, dropped.

Strategists at UBS stated: “Until some clarity emerges, we do not advocate taking directional views on sterling and advise hedging downside risks, but we note that sterling has tended to react positively to events that point to a substantial delay.”

The bond yields of the British government also dropped, with the 30-year gilt yield hitting its lowest since September 2017 after PM May spoke to the parliament.

Earlier, official data revealed that British inflation rose last month, however, it stayed close to the two-year low recorded last January. As with most economic data releases, the numbers had little effect on a pound preoccupied with Brexit headlines.