empty
 
 
23.10.2019 05:53 AM
GBP/USD. Brexit's fate: Johnson lost the battle but not the war

The British parliament yesterday again surprised with its twofold decision: on the one hand, it supported the general principles of the proposed deal, but on the other hand, refused to consider this issue in a speedy, three-day regime. As a result, the situation again remained in limbo, and the "Johnson Blitzkrieg" finally failed.

This image is no longer relevant

The Brexit question has again entered a long-playing phase: the prime minister paused the consideration of this bill. And yet, despite the actual failure of the prime minister, yesterday's events have a positive connotation for the British currency - especially in the long run. The current (negative) reaction of the pound is understandable and justified: London was just one step away from completing the divorce saga, and another step backward disappointed investors. But if we consider the results of yesterday's vote in more detail, we can conclude that the current composition of the House of Commons is "not so hopeless" in the context of contractual capacity. In other words, the chances of approving the deal by the end of this year still remain, but Brexit's next postponement seems to be inevitable.

The pound survived a "boring evening" yesterday: contrary to pessimistic forecasts, the deputies of the House of Commons approved the general provisions of the proposed deal. The voting results are really impressive - 329 deputies voted in favor. Among them are not only members of the Conservative Party, but also some independent deputies, and even several representatives of the Labour Party. 299 deputies (mostly Labour and Scottish Nationalists) spoke out against. For comparison: in January of this year, the Lower House of the British Parliament rejected the deal proposed by May with a failed result - only 202 deputies voted in favor, while 432 MPs voted against.

As soon as the results of this vote became known, the pound paired with the dollar flew to around 1.30, demonstrating a bullish momentum. But the sterling did not last long at this height: following the above question, the government put to the vote the next one - regarding the timing of the consideration of the proposed bill. And here the result was no longer in Johnson's favor, and, accordingly, not in favor of the pound. The Parliament refused to follow the Cabinet's proposal and rejected the proposal to limit the time for discussion of the bill before the third reading. The prime minister wanted to give MPs only three days, although the rules set aside at least three weeks for such treaties of an international character. The deputies did not take into account the political implication of the situation and the proximity of the "X-hour": with 322 votes, they refused to limit themselves to a three-day term.

This is a clear defeat of Boris Johnson. Indeed, a little more than a week left until October 31, which means that the Parliament probably will not have time to reach a final verdict on the deal. In addition, in order to obtain an extension of Brexit, London also needs a temporary gap: for example, a meeting of the European Parliament on this issue will take place tomorrow, and over the next days, EU leaders should approve the extension of the negotiation process. This is provided that all members of the EU form a single opinion - the French, as a rule, go towards Britain only after additional negotiations.

The situation is complicated by the fact that Johnson himself does not intend to beg Europe to grant another delay - and yesterday he again reminded the members of the House of Commons about this. On the one hand, he complied with the requirements of the law obliging him to send a corresponding appeal to Brussels. On the other hand, he also sent a personal letter to the leaders of the European Union, in which he asked not to provide the above delay. It is not yet clear what position Brussels will take in this situation. Many leaders of the EU (including Angela Merkel) expressed their readiness to extend the negotiation process until next summer. But taking into account the results of yesterday's vote and the prime minister's personal position, it is not known whether this delay will be granted, and if so, for how long.

This image is no longer relevant

The current situation puts pressure on the British currency. Paired with the dollar, the pound has returned to the middle of the 28th figure, and will surely fall lower, reacting to a changed fundamental background. But at the same time, I would not be in a hurry to draw conclusions about the resumption of the downward trend in the long term. The situation at any moment may change again - and in favor of the British currency. After Parliament rejected a government proposal to expedite the bill, Johnson said it was currently suspending its consideration as a whole. Now it is not known when the third - decisive - reading will take place. Hypothetically, they may have time to consider it before October 31 (which is unlikely, but still), so the possibility that Johnson will re-submit it to Parliament today or tomorrow is not ruled out. The prime minister may also request from Brussels the technical delay of Brexit - literally for a few weeks, so that the deputies of the House of Commons have time to consider the draft deal in full. Given the results of the preliminary vote, Europe is likely to go towards London on this issue.

All of these scenarios can provide strong support for the British currency. Therefore, despite the general pessimism that is present among GBP/USD traders at the moment, it is very risky to open short positions in the pair. Johnson lost the battle, but not the war.

Irina Manzenko,
Analytical expert of InstaForex
© 2007-2024
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST
  • Chancy Deposit
    Deposit your account with $3,000 and get $8000 more!
    In March we raffle $8000 within the Chancy Deposit campaign!
    Get a chance to win by depositing $3,000 to a trading account. Having fulfilled this condition, you become a campaign participant.
    JOIN CONTEST
  • Trade Wise, Win Device
    Top up your account with at least $500, sign up for the contest, and get a chance to win mobile devices.
    JOIN CONTEST
  • 100% Bonus
    Your unique opportunity to get a 100% bonus on your deposit
    GET BONUS
  • 55% Bonus
    Apply for a 55% bonus on your every deposit
    GET BONUS
  • 30% Bonus
    Receive a 30% bonus every time you top up your account
    GET BONUS

Recommended Stories

Can't speak right now?
Ask your question in the chat.
Widget callback