Market Overview

FxPro: Is there any exit from Brexit?

“The final vote on Brexit will take place on Tuesday in the Houses of Parliament.”

We were sure of that yesterday. But something didn’t go according to plan, and U.K. Prime Minister Theresa May has now postponed the final vote on the Brexit draft plan. The reason is simple: she realized that the document in its current form will not be accepted and will need more work as well as further discussions with the EU.

Of course, all of this discussion and uncertainty has a direct impact on the value of British assets, as market participants begin to act based on assumptions about the date and result of the final vote. The heat began yesterday when the Pound sank to a 20-month low, “taking out” the imprudent optimists of the market in the process.

In anticipation of the final results of the vote, you should pay attention to the following:

First of all, if Parliament refuses the current deal, it will put even more pressure on the pound, as this will dramatically increase the prospect of a “no deal” Brexit. In other words, the country will not only lose out on the collective strength of the EU on the world stage, but it will also fail to reap any of the benefits of a more orderly exit. The UK will then be in uncharted territory, constantly testing the limits of what is achievable ‘out on their own’, delimiting new boundaries and creating a new identity.

Of course, this situation does not suit the markets at all: it’s an extremely negative scenario for the pound, which is on the verge of becoming distinctly less attractive to investors. Yesterday the pound dropped back to 0.9080 EUR and 1.2500 USD.

In the event of the House of Commons opposing the Brexit plan approved by the EU, the government will have 21 days to propose a new plan and Theresa May will be able to make any changes she needs to, in order to improve the new plan’s chances. However, it is worth noting that her own position is very unsafe at this point in time – and the rumblings of discontent from her own party are getting louder every day. However, given that the rest of the United Kingdom considers her responsible for Brexit now, it’s likely that there will be many more voices claiming it’s her job to see things out to the bitter end.

On the other hand, if the House of Commons is ready to accept the Brexit plan, this may help the pound to regain its strength, as well as to restore many of the recent losses on the stock market.

Regardless of the decision, Britain’s exit from the EU will take place on March 29th, 2019. If there is an agreement with the EU at this point, Britain will have a transitional period until the end of 2020 with the status quo for many laws and regulations remaining in place until then. Without an agreement with the EU, there will be no transition period; the situation for business and citizens will change immediately and dramatically. This is why markets fear Brexit without an EU deal.

Let us recall how it all began. The Brexit referendum was held on June 23th, 2016, when 52% of Britons voted for Britain to leave the EU. On this news GBPUSD collapsed by 7% in one day, and intraday amplitude reached 12%.

The upcoming vote is likely to cause less volatility but, nevertheless, may well affect the course of trading and cause a change in leverage, as well as provoking stop-outs and margin-calls among traders with positions in GBP pairs and in British stocks.

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