British Pound Surges on Likely Brexit Delay
Three UK Parliamentary Votes Possible This Week
On Tuesday, the UK Parliament will vote for a second time on British Prime Minister Theresa May’s Brexit deal. This is the deal that outlines the terms of separation between the UK and European Union. May was already humiliated earlier this year when her Brexit deal was resoundingly defeated in Parliament. Needless to say, there are few expectations that May’s deal will be passed this time around.
If it is indeed rejected again, as expected, another vote will be held on Wednesday to decide whether or not the UK should leave the EU without a deal. This is otherwise known as a “hard Brexit.” If that is also rejected, as it’s expected to be, a third parliamentary vote will be held on Thursday. That final vote would be to decide on whether to delay the Brexit deadline of March 29 (Brexit Day) for a few months. If the vote gets to this third stage, it is widely expected that there will indeed be a Brexit delay.
UK Economy and British Pound at Stake
As noted, there will potentially be three votes this week in Parliament that will help decide the fate of the UK’s economy. One of the key charts to watch amid this drama will be the GBP/USD (British pound vs U.S. dollar).
The pound rose sharply on Monday due in part to speculation that there will ultimately be a postponement of Brexit Day. This, of course, would happen only if both May’s deal and a hard Brexit are rejected first. Generally, the pound has reacted negatively in the past to the overall prospect of Brexit, but even more so to the possibility of a hard Brexit. This is due to fears that a hard Brexit could inflict severe damage on the UK’s economy.
With market expectations leaning increasingly towards a Brexit delay after the three parliamentary votes this week, the likelihood of a hard Brexit on March 29 has diminished, alleviating some weight from the pound.
What May Happen Next?
Of course, the votes have not taken place just yet, and anything could happen. The pound could possibly even fall sharply this week, especially in the unlikely event that a Wednesday vote results in a hard Brexit on March 29.
From a technical analysis perspective, GBP/USD has just bounced off its 200-day moving average. Also, the 50-day and 200-day moving averages have just converged. This creates the potential for a near-future “golden cross,” which is a bullish technical pattern suggesting that the trend may turn up. If this indeed becomes the case, a further breakout above the 1.3300 resistance area would confirm that bullish turn.
Whichever way the votes ultimately go, expect heightened volatility for the pound this week and in the short run-up to Brexit Day.
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Senior Market Analyst at The Technicals
A veteran global macro trader/analyst, Bart focuses on major market moves in currencies, commodities, fixed income, and global equity indexes. Bart stresses inter-market correlations and dynamics while keeping a close eye on risk. He has published countless market analysis pieces and has been a guest expert for a variety of major financial media. Contact Bart