The British Prime Minister Theresa May called off the Brexit vote in Parliament yesterday. I left it there as I headed out and left the shift to my colleague Shain who covers markets during the US session. The GBP started tumbling lower. So, what has been going on since then?
Well, the GBP continued tumbling lower, reaching the lowest levels in 18 months. Theresa May held a speech in the Parliament in the afternoon and the first comments were that there is no date yet for the Brexit vote. That was the first comment which should have provided support for the GBP and perhaps reverse GBP/USD higher.
Then, the next comment was that May will seek for legal end-date for the backstop on the Irish border and that she won’t be looking to renegotiate the deal. That should have provided support as well since it means that May has some goal and was not just backing down or going to the EU without honest expectations.
Theresa May followed with the comments below:
- Is looking for ways to give the UK Parliament power over the Irish backstop
- The challenge of backstop must be met with real solutions
- Treaty is now clear that the backstop can only be temporary
- In no doubt that this is the right Brexit deal
- To seek additional reassurance on backstop from EU; that is what my focus will be on in the days ahead
- The House faces a much bigger question: “Does this House want to deliver Brexit?”
- A second referendum risks dividing the country again; when as a House we should be striving to bring it back together
- Government will step up preparations for no-deal Brexit
The first five comments should have been hawkish since she now has a plan. To go back to the EU and ask for legal end-date for the backstop and reassure more MPs that the backstop will end at some point. That doesn’t have to change the the deal, just add some more to it, so the EU shouldn’t be against it.
Then, the last three comments were quite bearish for the GBP. She questions whether the Parliament really wants to deliver on the Brexit vote. She confirms that a second referendum is out of the question since it would divide the country and she is preparing for no-deal Brexit. That’s very worrisome for UK businesses and consequently for the GBP.
The head of the opposition Labour Party Jeremy Cobryn followed up later saying that the problems are much deeper than just the backstop. Then, EU sources said that EU Ministers plan no Brexit meeting on Tuesday. May’s spokesman commented a bit later that the Government won’t extend Article 50. EU’s Donald Tusk took his turn saying that the EU will not renegotiate Brexit but will discuss how to facilitate it.
Where does this leave us now?
Well, according to logic, Theresa May should go back to the EU in the following days and they will end up making some cosmetic changes to the actual deal, and probably have a fixed end-date for the Irish backstop. May accepted that she would have lost by a wide margin, so this should satisfy another portion of the Parliament.