Brexit: Show Must Go On

In recent days, traders of the GBP/USD currency pair begins not with coffee in the morning but with an examination of the operational situation around Brexit. The situation is changing with kaleidoscopic speed, as well as the mood of the markets. Yesterday evening, the pair grew rapidly, climbing to the 34th figure and renewing the annual maximums but the pound lost ground already during the Asian session and loosened the bullish grip. To this morning, the situation has changed again and the Briton is recovering. Buyers again provoke strong volatility in response to rumors appearing yesterday.

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We are talking about an article in one of the most influential British newspapers. According to this publication, the postponement of Brexit will only increase the likelihood of Britain leaving the EU without a deal. The fact is that yesterday’s vote only reflects the intentions of the parliament, but is not binding. Therefore, the “hard” Brexit is still possible, which is very likely. According to journalists, Brussels is very categorically disposed towards further relations with London with no negotiations and not ending. Moreover, according to the European newspapers report, the European Union is currently developing penalties for Britain as compensation for accepting a postponement of Brexit. Brussels can raise the cost of leaving the European Union to 39 billion pounds equivalent to 45 billion dollars for the very fact of the transfer of the “x-hour”. Against the background of such prospects, yesterday there was information on the market that Theresa May is preparing a second, third in a row, vote for a draft deal with the EU. According to unofficial data, the prime minister holds closed meetings with the most influential conservatives, trying to convince them to vote for the agreement.

The unexpected uncertainty put pressure on the pound, although this pressure was rather limited. At the end of the Asian session, the GBP/USD pair did not leave the frame of 32 figures, departing only from the price maximum of this year at1.3379. But in general, optimism quickly changed to alertness since the problem of negotiation deadlock, by and large, did not disappear anywhere. The results of yesterday’s voting are also alarming where the numerical superiority of opponents of the “hard” Brexit over the supporters of the chaotic divorce from the European Union was minimal with a “gap” of only four votes. Although, according to some British political scientists, this fact should be considered from the point of view that the parliamentary decision was of a recommended nature. Therefore, such a large number of votes cast for the “hard” Brexit, testifies rather to the attitude of these deputies to the activities of Theresa May. If parliament really put an end to the dilemma of “with or without a deal”, the picture of the vote would have been different, at least many experts are sure of it.

Also, note one important nuance. The Cabinet of Ministers introduced to the vote a bill proposing to exclude the possibility of exit without a deal only on March 29. However, the deputies voted for the amendment, which prohibits the “hard” Brexit at all ever. The adopted rule does not have the force of direct action that is, hypothetically, the government can act in its own way but the reality of political relations in Britain such that the cabinet of ministers is unlikely to ignore the opinion of the parliamentary majority.

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In my opinion, the GBP/USD pair still has the potential for further growth which in both cases of postponement of Brexit and especially in the case of repeated voting for the rejected draft of the transaction. The initial reaction of the British currency in both cases will be positive, while the medium and long-term prospects of the pound depending on further actions of Brussels. It is worth recalling that, since the previous vote May was able to “win over” 40 conservatives to their side, who voted against the deal in January. Seventy-five (75) representatives of the Tories did not change their opinions and apparently, the British Prime Minister is negotiating with the “internal opposition.”

Thus, the “operational environment” around Brexit now looks like this. Today, the deputies are likely to agree to postpone the date of the country’s withdrawal from the EU based on the preliminary data on June 30. At the same time, Theresa May will again submit a draft deal to parliament with the vote to take place on March 20, according to press information. If the House of Commons fails for the third time, Brussels will insist on a longer transfer of Brexit either until the end of next year or until mid-2021. According to British ministers, such intentions are supported by Theresa May. Moreover, she allegedly warned the Conservatives that the country would remain “in a swamp of uncertainty” for a few more years if they did not support the agreement for the third time.

By and large, all of the above scenarios eliminate the “hard” Brexit, which means that the GBP/USD pair has the potential to test the price highs of this year again.

The material has been provided by InstaForex Company – www.instaforex.com