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Essential IR Insights Newsletter - February 2023

Pound passes $1.30 first time since May as Johnson 'has numbers' for Brexit bill

The pound advanced, climbing above $1.30 for the first time since May, on optimism U.K. Prime Minister Boris Johnson will get his Brexit deal through Parliament this week.

Sterling added to its 5.2% gain from the past two weeks as traders shrugged off Johnson's failure to get the deal passed during a rare weekend parliamentary session on Oct. 19.

Johnson plans to push on with plans to get the deal through Parliament this week as Foreign Secretary Dominic Raab told the BBC that the government "has the numbers" to get the deal over the line and the U.K. will still leave the EU by the end of the month. Calculations by the Financial Times suggest Johnson will win a vote on his Brexit deal by a majority of five.

Sterling climbed as high as $1.3008 before trading little changed at $1.2981 as of about 10:30 a.m. in London. It gained 5.2% in the past two weeks on optimism for a deal to leave the EU, the deadline for which has already been extended twice from its original March 31 date. The pound closed at $1.2034 on Aug. 9, the lowest level since 1985, as the chances of a deal appeared to wane.

'Die in a ditch'

Johnson sent a letter to the EU on Oct. 19 requesting an extension to the Oct. 31 Brexit deadline, according to a tweet from European Council President Donald Tusk, who said he would begin consultations with EU leaders on how to respond.

The letter wasn't signed by Johnson and was followed by second one saying that he believes a delay would be a mistake, according to numerous media reports, citing a Downing Street official. Johnson had previously said he would rather "die in a ditch" than ask the EU for an extension.

Johnson told Parliament earlier that day that he will not "negotiate" an extension to Article 50 with the EU, after MPs voted to delay implementation of his Brexit bill until after the necessary legislation had passed. He was legally required to send the letter according to the Benn Act, passed by MPs in September to stop the U.K. from crashing out of the EU without a deal if one had not been passed by Oct. 19.

The government planned to hold a vote on Johnson's Brexit deal on Oct. 19 but changed tack after the passing of the so-called Letwin Amendment by 322 votes to 306, which sought to delay the vote and trigger the Benn Act.

The EU is ready to grant the U.K. a three-month technical extension to its departure if a withdrawal deal is not finalized this week, The Sunday Times reported, citing diplomatic sources. The "fungible" extension would allow the U.K. to leave the bloc on the 1st or 15th of the next three months through January 2020 if a Brexit deal is ratified before February next year.

Monday vote

"I will not negotiate a delay with the EU and neither does the law compel me to do," he said, leaving commentators wondering whether he would comply with the letter of the law by requesting an extension but then refusing to engage in the process of getting one, or whether he would decline to send a letter at all.

The Leader of the House of Commons Jacob Rees-Mogg said at the end of the parliamentary session that the government would bring the Brexit bill back for a vote on Monday, Oct. 21. It is not clear whether Johnson's deal is likely to pass after he lost the support of Northern Irish unionist party, the DUP.

The vote on the Letwin Amendment happened during the first session of Parliament to be held on a Saturday since before the Falklands War in 1982. It followed five hours of debate during which the opposition Labour party argued against the bill on the grounds that it would leave the door open for the U.K. to weaken workers' rights and lead to regulatory divergence with the EU. The deal was also opposed by the Liberal Democrats, the Scottish National Party and the DUP.

Shadow Brexit Secretary Keir Starmer said Labour could back the new deal if it was put to the people in a second referendum, the FT reported. However Johnson has said he opposes the move and the House of Commons is yet to vote in favor of a fresh vote.