Brexit continues to steal the spotlight in markets
The no confidence vote against Theresa May and her government is slated for some time around 1900 GMT later today, so between now and then expect plenty more rumour-mongering and what not in the coming hours. However, the expectation is still that the government will not lose this vote as Tory MPs are unlikely to vote themselves out of power later today.
That's very much reflected in the price of the pound too as we begin the day. GBP/USD is basically unchanged after the "sell the rumour, buy the fact" play from the meaningful vote decision yesterday. It means that markets are not yet pricing in a negative outcome or further uncertainty ahead of the no confidence vote later.
If May does lose the vote later and there is no alternative government set to take over (which will be the case if she loses), then we're headed towards a general election next.
But if she does win as expected, the government will have to come up with a new plan on Brexit by next Monday.
What does that mean for the pound?
Essentially, the most important narrative at this juncture is that May is expected to win the vote later and if she does, a no-deal outcome is still seen very unlikely. That means that the upside potential for the pound is looking more attractive at this point.
May will be holding further talks with the DUP and opposition parties in the coming days to find out what is needed to win over their votes when needed to push forward with a "Plan B". But it is clear that there will be no workaround on the backstop so any efforts that are laid down on this path will be futile.
But that is likely what May will be angling to play for. Aside from a push towards a no-deal outcome, it's either going to be a second attempt to get her deal past parliament through a renegotiation with the European Union (which won't achieve anything), a change of course to pursue a Norway-style Brexit deal, or a second referendum being held.
In those cases, an extension of Article 50 is very much needed and that bodes well for the pound as it means that chances of a deal or a no Brexit outcome is starting to tick higher.
May has been adamant to say that the government has been ruling out an extension to Article 50. But in a situation like the above, she can easily put the blame on external factors forcing them to take up that option since there isn't anything else she can do at this point in time.
Previous statements by the government have read something along the lines that "we are not going to extend Article 50". However, yesterday it read "we don't necessarily agree Article 50 will have to be extended". Note the subtle change in tone, there? ;)
