On June 23rd, 2016, UK has expressed the democratic will of leaving the European Union. The vote’s result defied expectations and churned global markets, causing the British Pound to tumble to its lowest level against the dollar in 30 years. “Leave” won the June 2016 referendum with merely 51.9% of the ballot with a 72.2% turnout. The process of the UK-EU divorce formally began on March 29,2017 after May had triggered Article 50 of the Lisbon treaty offering the two parties a two-year negotiation period to settle their new relationship. These discussions have not been settled yet, were trials to do so always tend to abort leaving the U.K.’s future plagued with uncertainty.
So far, this has taken a significant toll on UK’s economic growth:
UK’s economic growth has slowed as it approaches year-end and Brexit uncertainty is held accountable. November 9, 2018, and for the second month in a row, Britain’s GDP held at 0% disappointing the 0.1% expectations and perhaps, kicking of the final quarter of 2018 off to a downturn.
Under such uncertain circumstances, GBP bearishness is obvious where an immediate slip in the GBPUSD is seen dropping from 1.3029 till 1.2977 within an hour’s trading followed by a rise in the EURGBP from 0.8691 till 0.8744 after a 0% growth rate. The GBP bearishness came even stronger after the weekend with its decline to 1.2827 against the USD and 0.8773 against the EUR. The Brexit pendulum keeps swinging, and right now it is going against Pound Sterling.
Recent deliberations on the Brexit front, shows that Prime Minister Theresa May was able to achieve a solid draft with the EU that addresses all the subjects from the Trade Deal between the two economies to the issue with the North Ireland border. It aims to guarantee that physical checks will not be reintroduced at the border between Northern Ireland and the Republic as it implies that Northern Ireland would stay aligned to some EU rules on things like food products and goods standards. Hence, involving a temporary single custom territory and effectively keeping the whole of the UK in the EU customs union.
After Theresa May had defended the latest Brexit draft in the Cabinet with no one resigning afterwards on that day, she was left to face a battle of getting the agreement through the House of Commons ahead of the UK’s exit from the EU on 29 March which is a much harder sell.
However, Brexit news from today’s European morning session include the resignation of Dominic Raab as U.K. Brexit secretary claiming he cannot support indefinite backstop arrangements as the main reason, along with the price out of BOE rate hike in 2019, triggering a sharp reaction in the UK market on the spot where the pound has been dragged lower again with cable at 1.2750. The resignation series continued to include the resignation of both, Junior Brexit minister Braveman and Esther McVey, who attended May’s meeting yesterday.
In her defense against the Parliament, May is calling for a deal again assuring that her negotiations with the EU are an adjustable draft not the final draft; the options then fall in leaving with no deal, risking no Brexit at all, or support the best deal that can be negotiated. She claims that voting against the deal would take the UK back to square one. Should Parliament vote the current draft down, the only remaining move for Britain would be a hard Brexit (as in No EU Deal Exit), or no Brexit at all implying a possible second referendum.
It’s more of a case that the element of uncertainty makes it tough for market participants to get a good read on what is going to happen next so flows are going into haven assets instead.
The future of Britain falls in the hands of the Brexit deal; it will either witness a victory or tumble down wiping out any chance of Britain regaining its health.