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22.10.2019 12:49 AM
GBP/USD. Brexit endgame: Johnson and Parliament prepare for decisive battle

The information hype around Brexit is gaining momentum every day, however, today there were more and more headlines in the form of a question. If you narrow down the entire information flow as much as possible, then the message of all the news is inherently opposite: "agreed" or "did not agree". The context of these words is already clear to many without further explanation: Johnson's renewed deal, which is currently being tested by the British Parliament, is at stake.

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Here it is necessary to recall the five pillars of the new deal on which the relationship between London and Brussels will be based (unless, of course, the Parliament approves the deal). Firstly, the parties agreed that Great Britain leaves the jurisdiction of all the laws of the European Union, closing in on the action of the national legal field. Secondly, Britain leaves the jurisdiction of the European Court. Thirdly, the tax policy of Britain is controlled and determined exclusively by London. Fourth, Britain will now have the right to conclude its own free trade agreements (being in the orbit of the EU, London could not act as a separate party).

Fifthly, Northern Ireland remains the customs territory of Britain, however, the "secret" (or "translucent") customs border will nevertheless pass along the Irish Sea, that is, between Northern Ireland and Great Britain, but not between Northern Ireland and the Republic of Ireland . In practice, this means that merchant ships will be forced to undergo customs checks in the Northern Irish ports, and in some cases, the British authorities will levy customs duties - if goods from third countries do not enter the EU internal market. But in those cases when the goods will go to the European market, "British law" will not "work", but the EU customs rules. Following this pattern, Northern Ireland will remain de jure within the customs territory of Great Britain, and de facto (when it comes to goods entering the European market) in the customs union of the European Union.

The most heated debate flared up around the last two points of the deal. In the first half of the day, information appeared that the DUP representatives would support the Labour amendment, which in turn would actually block the draft deal (in terms of implementing its own trade policy). But later, official representatives of the Unionists announced that they would not support the Labour Party in this matter. After that, the pound paired with the dollar again approached the boundary of the 30th figure. In general, the market continues to react violently to completely unverified information. Positive signals are enthusiastically picked up by traders and the pound is rapidly gaining momentum, but then doubts about the prospects of approving the deal return to the market. As a result, the GBP/USD pair throughout Monday has been trying to impulse to break through the 30th figure and gain a foothold over this target, but the contradictory fundamental background does not allow this.

This morning, rumors were circulating in the market that Johnson would make a deal for the so-called "preliminary vote", which was designed to answer the question: are the deputies ready in principle to support the proposed deal or not? But the speaker of the British Parliament, John Bercow, did not allow this to be done. He said that this issue should not be put to the vote again, as this is the same proposal that was submitted for consideration on Saturday (and the law prohibits voting twice on the same issue without significant changes in substance). Johnson's supporters tried to convince the speaker of the Parliament, arguing that the prime minister sent letters to Brussels asking for a postponement - and this supposedly is the necessary "new circumstances". But the speaker called these arguments unconvincing: there will be no repeat vote on Brexit today.

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However, this fact did not upset the bulls of the GBP/USD pair: as one member of Johnson's cabinet assured, the process of discussing Brexit's prospects in any case entered the "endgame" stage (the so-called final part of a chess or checkers game). According to the government, the party being played is ending in accordance with the main points of the prime minister's scenario, contrary to the protests of many British politicians. Is this so - we will find out over the next few days when the vote on the amendments should take place, and in fact, on the draft deal.

Given the prevailing fundamental background, the pound will "keep the defense" in any political situation. If MPs nevertheless approve the deal, the pair will jump by a few figures, otherwise Brexit's issue will most likely be postponed for several months - either for early parliamentary elections or for technical purposes in order to bring national legislation into line with the provisions of the updated deal .

According to the British press, European Council President Donald Tusk and German Chancellor Angela Merkel have already agreed on a postponement option, and the European Parliament is ready to vote for this issue next Thursday. In other words, the pound is "protected" from hard Brexit from all sides - both from the side of the British Parliament and from the supportive position of Brussels. Therefore, in the near future, the British currency will demonstrate a fighting spirit, in anticipation of the key stages of voting within the walls of the House of Commons.

Irina Manzenko,
Analytical expert of InstaForex
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