The Brexit Vote continues to be the main focus for GBP exchange rates at present. In today’s post I’ll take a look at the various outcomes of next week’s vote, and how each one might affect GBP exchange Rates.
Brexit Deal is voted through
This is the least likely outcome based on what we know now. Nothing much has changed since last month, and the EU haven’t made any concessions. If by some miracle MP’s decide to vote the deal through, then it should strengthen the Pound significantly, pushing GBP/EUR rates above €1.15.
Brexit Deal is voted down
The Pound has risen a little on reports that May is trying to get support from the DUP, but as things stand now, she will lose the Brexit vote by a considerable margin. If this is the case, then within 3 days she will have to make a statement to parliament on how she plans to move forwards. In this scenario, we would edge closer to a ‘No Deal’ and it would probably weaken the Pound. It wouldn’t change much overall though, so I don’t think the Pound /Euro rate would drop below €1.10.
Brexit vote is postponed again
This is a real possibility. If May thinks that she will lose the Brexit vote by more than 50, then it’s likely she will postpone it for a second time. In this scenario we would probably see limited GBP weakness. The overall picture would remain the same however so markets would probably wait to see how the EU would react and see if further concessions could be made.
Article 50 is delayed
There were some unconfirmed reports in the Telegraph yesterday that the EU and UK had made some tentative steps to establish whether Leaving the EU at the end of March could be delayed. This would require the agreement of all 27 EU nations. In my view, for this to happen the EU would need to see a particular reason for doing so, e.g. an election or second referendum. Just delaying to enter into further negotiations is unlikely to be agreed by the EU. If it happened, it would just be delaying rather than fixing anything, so while we might see some GBP strength, it would be limited.
No Deal Brexit ruled out
MP’s delivered a blow to parliament last night, when they inflicted a defeat on the Finance Bill. effectively this means that the government wouldn’t be able to raise taxes to prepare for a No Deal. On the one hand the rebels think this will reduce the chances of leaving without a deal. Indeed many want the government to rule this out.
While I can see why many would want to support this, I think that it would weaken our negotiating position severely. If the EU know we won’t leave without a deal, there would be no reason for them to make any concessions to the deal already on the table. The first rule of negotiation is being prepared to walk away. It’s like walking in to a car dealership and stating that whatever happens, you’re going to be buying that car today, and then trying to get a discount on the price. This scenario would probably lend some support to the Pound, but much uncertainty would remain limiting any gains.
No Deal Brexit
I don’t think this will happen, but it remains a possibility. This is the worst possible outcome in terms of the value of the Pound. Many analysts expect the Pound to plummet in value if this is the outcome. GBP/EUR could easily fall to parity, or even lower. This is the least likely outcome. As outlined above however, it needs to be an option that remains on the table if there is any hope of getting a decent withdrawal agreement that parliament can vote for.
How to avoid adverse exchange rate movements
As you can see from my brief outline above, there are so many different things that could happen in the coming weeks. All this uncertainty will not be good for the Pound. the continued bickering and in-fighting in UK politics isn’t helping things.
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