Sterling nears $1.25 after government loses Brexit case, BoE report

Sterling surged to a four-week high close to $1.25 on Thursday, after England’s High Court ruled that the government needed parliamentary approval to trigger Brexit and as the Bank of England scrapped plans to cut interest rates.

The court ruling offered hope to investors worried that Prime Minister Theresa May’s cabinet is set on an economically disruptive “hard Brexit”, reckoning lawmakers - a majority of whom supported staying in the EU in June’s referendum - will push for Britain to keep access to Europe’s single market.

Sterling climbed as much as 1.5 percent to hit $1.2494, its strongest since Oct. 7 - the day a “flash crash” briefly sent sterling plunging 10 percent in a matter of minutes. That left it on track for its best week in eight months, after an almost 2.5 percent climb.

Shares in European banks - another big source of concern in the Brexit process - gained 1.7 percent, while UK midcaps, more geared to the domestic economy than their bluechip peers, jumped 1.5 percent, significantly outperforming the more globally-focused FTSE 100.

The daily spread between the two indexes’ moves was poised to hit its highest since 2009.

Appeal

The government said it would appeal the judgement at a Supreme Court hearing set for early December.

“While the ruling may be reversed when appealed at the start of December, the decision does offer hope to ‘remainers’,” said Oanda market analyst Craig Erlam.

“In the best case scenario, it won’t pass through parliament and the Brexit referendum will have been for nothing. (That) is still unlikely at this stage as the political backlash could be extreme but still, this ruling does offer hope and this is why we’ve seen sterling spike.”

Other analysts said the impact of the court decision would be far more limited, and many said lawmakers were unlikely to block the formal invocation of Article 50 of the EU constitution, which triggers exit negotiations.

Japanese bank Nomura last week laid out research that showed that while 74 percent of the members of parliament known to have a view supported remaining in the EU before the referendum, 61 percent of their constituencies voted in favor of leaving.