The pound jumped against both the pound and the dollar on Tuesday, after the European Court of Justice’s advocate general said that the UK could unilaterally revoke Article 50, putting an end to Brexit.
The EU’s top court has been considering the question of whether the UK can decide not to go ahead with Brexit after a legal challenge by campaigners.
The formal legal recommendation, published on Tuesday, cites Britain’s “sovereignty” in treaty-making matters and says withdrawal “may be revoked at any time” during the negotiating period, as long as it is done in good faith.
Sterling was up 0.55 per cent at $1.2795, and rose 0.29 per cent to hit €1.1239.
The court’s advice comes as the government prepares to vote on Theresa May’s Brexitdeal, and Simon Harvey, FX analyst at Monex Europe said the pound’s surge “suggests the market is… looking for further guidance”.
With MPs set to debate the deal ahead of the vote, Mr Harvey said current forecasts are leading “towards a marginal loss by May’s government in Parliament where a further fudge will occur in an attempt to please enough MPs to favour the draft deal in a second running”.
“If this occurs sterling will likely head towards the $1.25 level for the end of the year, but if the political pundits are to be believed, the draft deal may face opposition so large that further uncertainty creeps into the market,” he added.
“Prospects of a second referendum and a vote of no confidence will then re-emerge and force sterling to test post referendum lows.”
Meanwhile, Bank of England governor Mark Carney warned on Tuesday that a disorderly no-deal Brexit would likely cause a sharp drop in the value of the pound - a decline of as much as 25 per cent - which would in turn push grocery prices up by 10 per cent.
