GBP/USD Buying opportunity? Brexit could become favorable after the Tory Conference

  • PM May is toughening her position ahead of key events.
  • It may preempt a total surrender after the Conservative Party Conference in Birmingham.
  • The GBP/USD may fall on the headlines now but could soar if things improve afterward.

UK Prime Minister Theresa May said that “it’s either my deal or no deal.” Despite a lack of support at home and in the European Union, Downing Street is sticking to the Chequers plan.

The “common rulebook” does not satisfy the hard Brexiteers, as it binds the UK to some European rules. Former Foreign Secretary and the leading contender to challenge May, Boris Johnson, said that the UK is going towards a car crash. The same proposal is disliked by Brussels which sees the Chequers proposal as cherry-picking. Chief EU Negotiator Michel Barnier has reportedly called it “dead.

So why is May sticking to it? 

Saying no now, Norway later

She needs to keep up a fight with European leaders at the upcoming unofficial Summit in Salzburg, Austria, on September 20th. This position is needed towards the Conservative Party Conference in Birmingham on September 30th to October 3rd. She may face a challenge from Johnson or other hard-Brexiteers.

However, after securing her role and fending off her rivals, she may take a U-turn and give in to EU demands. They have the upper hand in the negotiations. Reports already suggest that the 27-country bloc expects concessions from Britain.

The deal could be Norway-style agreement that could be temporary in nature. Norway is not a member of the EU but pays into the budget, enjoys access to the single market, and allows free movement of people. It has all the rights and obligations but without having a say. And can always renegotiate the agreements with the EU.

That would allow the UK to enjoy continuity and remove any shocks. It would also allow more time to consider what kind of Brexit the nation wants. Brits voted to leave the EU in 2016. May then said that “Brexit means Brexit”, but the interpretation of what Brexit actually means was not really debated before the vote.

In such a case of a Norway-style deal, the pound would jump as all the concerns about issues for businesses or a “cliff-edge” Brexit would vanish. Even a “Norway-minus” accord would be an improvement to the current situation of high uncertainty.

Passing Parliament

Will May have enough support to pass such a deal in parliament?

Some Tory members will vote against the government which does not have a majority in parliament. Will May receive support from the opposition? The Liberal Democrats are staunchly pro-European, but they are a small party.

The Labour Party also has its annual conference. It is held in Liverpool on September 23-26. And also here, reports suggest that Jeremy Corbyn will lead his party to oppose any Brexit deal the government brings. That is the role of the opposition. But Labour also holds the position that wants the best accord for the economy and for jobs.

Most of Labour’s MP’s are pro-European. It is hard to see them thwarting a deal that is good for jobs.

The scenario with the highest potential for volatility

The scenario presented above is not the only scenario but it entails the highest risk. Big business is stepping up its efforts and nobody wants Britain to fall off a cliff.

Markets are currently pricing high uncertainty and fearing a no-deal Brexit. A positive twist in the plot could send the GBP/USDskyrocketing.

More: The dark side of Barnier’s mood

Leave a Reply