Why is the Pound Rallying?

Earlier today on our partner site, Unicorn Politics, we discussed the latest details surrounding Brexit. In summary, Parliament voted against Boris Johnson (the Prime Minister) in an effort to prevent a no-deal Brexit.

While a no-deal Brexit now seems less likely, the British political climate is still mired in chaos. There is no clear road forward. And we may be looking at another general election before anything is decided.

So why is the Great British Pound (GBP) rallying strongly of late?

No Deal? Bad Deal

The worst-case scenario for the British economy, many believe, is a no-deal Brexit.

Here’s a refresher course on what that means: if the two parties, the United Kingdom and the European Union, can’t reach an agreement by a certain date (currently Oct. 31), the U.K. leaves without one. That means that none of the issues between the two parties are resolved. The most pessimistic prognosticators believe this would be disastrous for both parties, while others suggest both would proceed as normal. The truth is probably in the middle.

But the possibility of a no-deal Brexit is not one anyone has wanted to entertain… that is, until Johnson became PM. He’s pushed a Brexit at all costs platform, suggesting that fulfilling the referendum of the people from 2016 was the ultimate priority. His approach has forced many of his own parliamentarians to flip sides.

So today’s news, ultimately, was good news for the GBP. By voting last night to forestall a no-deal Brexit, the opposition made the perceived worst-case scenario less likely. That bolstered investor confidence, and therefore extended the rally of the GBP. Currently,  £1 is worth $1.22, already a two-cent improvement since late yesterday.