Queen Elizabeth II has OK'ed Prime Minister Boris Johnson's request to suspend Parliament in September, with a new session beginning in mid-October.
The move gives MPs limited time to stop a no-deal Brexit.
In response to this news, the sterling fell 1% against the dollar Wednesday morning.
"[The] sterling suffered a large sell-off this morning as traders suddenly got notice that Boris Johnson will not let Parliament get in the way of a no-deal Brexit," said Andy Scott, associate director at JCRA.
The sterling’s recent recovery from multiyear lows versus the dollar and the euro over the past two weeks has been largely due to hopes that either the EU will agree to replace the Irish backstop with alternative arrangements, or that Parliament can block a no-deal Brexit, Scott said.
"Today’s move by Johnson undermines Parliament’s chances and sets the U.K. on a hard Brexit course with arguably few prospects of avoiding such an outcome. The sterling continues to reflect market optimism or pessimism over the prospects for a smooth and orderly exit from the EU."
Sterling To Suffer Further?
Richard Falkenhäll, senior FX strategist at SEB, said he expects the sterling to suffer from the developing Brexit battle in the House of Commons.
"After a couple of weeks with relative silence on the Brexit front since the Commons closed for summer recess, we are now getting into what seems to be an ugly battle between the new pro-Brexit government and the lower house; a battle in which apparently all means will be used to reach the objective, either to leave on Oct. 31 or to delay a withdrawal," he said.
Although the likelihood of a no-deal withdrawal is much higher today than what it used to be, Falkenhäll said the battle is more likely to end with another extension of the withdrawal period or a snap election than in a hard Brexit that would serve no one.
In the meantime, analysts expect the sterling to suffer, with new lows against the dollar and euro likely in the coming weeks.
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