Macro

How’s Brexit going?

Christopher Dembik

Head of Macro Analysis

Summary:  The GBP is back under 1.20 USD, the lowest level since January 2017 due to a sharp increase in political risk and a lot of confusion regarding what will happen at the political level by the end of the day.


The market situation this morning: the GBP is back under 1.20 USD, the lowest level since January 2017 due to a sharp increase in political risk and a lot of confusion regarding what will happen at the political level by the end of day.

What we know:

  • The PM Boris Johnson confirmed this morning that he is “committed to leading (the UK) forward and getting Britain out of the EU by October 31st”.
  •  Corbyn is meeting opposition parties and the Labour Party indicated it won’t back snap elections on PM’s terms.
  • If the Brexit extension bill is voted today, it will have key political implications as it states that the European Union can choose the length of the extension – without a limit – and the Prime Minister must agree to it.

We identify three outcomes for today’s vote:

  • The Brexit deadline is confirmedNEGATIVE for GBP, but it has already been priced in in the market.
  • The no-deal Brexit scheduled on October 31st is taken off the table by the ParliamentPOSITIVE for GBP, and it would certainly mean Brexit extended into infinity as the EU can choose the length of the extension.

  • The MPs approve a snap election (initially to be held on October 14th). POSITIVE in the short term but might lead to more confusion in the medium term. Indeed, Philip Hammond rightly pointed out this morning that if the Parliament approves a general election, the Prime minister Boris Johnson could just change the date of it until after Brexit deadline. This scenario does not take off the table the risk of hard Brexit, contrary to what has been said here and there since yesterday. On the top of that, Corbyn risk would also be back for investors, thought we consider it is less harmful for the GBP, at least in the short term.

On a final note, it is highly certain that today’s vote will not bring much clarity regarding Brexit process. At best, depending on the scenario that prevails, we can see some short-term relief for the GBP, but the currency is doomed to depreciate further in the long run as the political saga continues.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.