What Next for Sterling After May’s Loss?

Yesterday, British
parliamentarians held a vote on a deal that Theresa May negotiated with the
European Union. As expected, the members of parliament voted against the deal
by a larger margin than had earlier been expected. More than 400 members
rejected the deal. This decision presented the country with a major challenge,
seven weeks before it is expected to leave the European Union completely. After
the vote, May said that she will try to hammer a deal that is acceptable by the
both sides. In his response, the opposition leader, Jeremy Corbyn said that he
will table a motion of no confidence against the prime minister today. She is
widely expected to survive the vote because both parties don’t want an election
at this time.

The country now enters into
uncharted territories as the March deadline nears. If the country exits the EU
without a deal, the two sides will have to trade using the World Trade
Organization (WTO) rules. There is also a possibility that the business
environment will be challenging. Big companies based in the UK that have EU
operations may suffer because of the disruption in the supply chain. The
housing market in major cities could suffer as demand for housing declines.

However, amidst all the darkness,
there is a silver lining. First, while focus has been on the United Kingdom and
its need for a deal, investors have forgotten that the European Union too wants
a deal. As such, the EU could try to accommodate the issues raised by British
politicians. Second, even as the parliament rejected the deal, the consensus is
that most members want to leave with a deal. This is because both members fear
the job losses in their constituencies. Therefore, there is a likelihood that
the two sides will negotiate and reach a deal that is acceptable in parliament.
Finally, there will be European elections mid this year. There is a possibility
that this will bring flexibility to the members who want a strong Europe.

Perhaps, these are the reasons why
the sterling rose sharply after the vote was made. However, for traders, there
is a need for caution when it comes to trading the sterling. This is because even
in a trend, a single news or rumor can lead to a sharp reversal in price.  

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