What happens next after we get over another Brexit hurdle?
Brexit has had more events and hurdles than the Grand National. For trading, as a great songwriter and musician once wrote;
Then I’m done done on to the next one
Done done and I’m on to the next one…
So how are we left now, and what happens in the pound?
The sands have shifted once again. The opposition parties have played and gambled on most of their trump cards, and lost. Now the parties who have pushed for no-Brexit or a second referendum have no choice but to accept May’s invite of cross-party talks to formulate a Brexit deal that will pass the House. By their own actions they have vastly limited their ability to go against May, as to do so would mean they would be the architects of a no-deal, and they would be responsible to their voters.
For all that has happened, May has been unwavering that Brexit happens and now the onus is on the other parties to help make it happen. I’m sure this hasn’t been May’s plan from the start but by proxy she might now have more control and power than two days ago when she lost the meaningful vote.
Does any of the above mean it will be plain sailing for Brexit now or that the opposition parties will cave in completely? Not on your Nelly. It is still very much open for the opposition parties to carry on playing hard ball and talking tough for their own agendas and to save face from this defeat, so we can’t rule it out. However, in trading terms we might now have a different vibe for GBP. Irrespective of possible messing around in these cross-party talks, the chances of a deal happening are now rising over the prospect of a no-deal or no-Brexit. No-Brexit (outright or 2nd ref) is the markets top choice for GBP positivity, so an actual deal is now like a second prize. That second prize will still be very significant in terms of price moves IF the UK can actually put a deal together it can agree on. Secondary to that will be how much extra they might need to get from Europe. Europe will bend if the UK has further demands that will finally put Brexit to bed (this volume of the story anyway) but that’s for another time. At the end of the day, the UK, Europe and the markets want certainty, and a deal is certainty.
For the pound from here, I expect it to remain buoyant because the worst case scenarios have moved a few rungs down the ladder, and the positive scenarios have moved up. I expect dip buying to outweigh rally selling but with the much learned caveat that this is Brexit and anything can happen.
The big money is still sitting on the sidelines as it’s not going to be sucked in by the domestic politics too much, unless it means a clear conclusion to Brexit is coming one way or another. We have a short time frame now (Monday) for May to conclude cross-party talks and present a favourable deal. That’s a tough ask and so we can expect to hear plenty more on possible extensions to those talks, and indeed the Brexit date itself, only this time, an extension to the Brexit date is more likely to be to get a deal done, than a no-Brexit, as the market had previously been thinking.
As I’m fond of repeating, there’s many more twists and turns to come and we face another big weekend of headline risk as May will be beavering away until Monday. I’ll be viewing trading the pound as I have for all of Brexit so far, like trying to play in a pit of poisonous snakes.
On to the next one…