Stakes for sterling traders rise on Brexit breakthrough
November 14, 2018

By John J Hardy, Head of FX Strategy at Saxo Bank

Summary:  The EU and UK prime minister Theresa May's team have reached an agreement on Brexit terms, but sterling is stuck near unchanged from yesterday's levels as the next do-or-die step is today's UK government cabinet meeting to decide whether the deal can proceed to an EU summit and parliamentary vote.

The EU has reached an agreement with UK prime minister May's negotiating team, with specifics (400 pages thereof) not yet publicly available and not entirely clear, though the deal would include a UK-wide "backstop" deal that keeps all of the UK – not just Northern Ireland – in the customs union for another 20 months beyond the transition period (end 2021) should further negotiations on the UK/EU trade relationship remain at an impasse.

This was one of the main sticking points and other details will emerge, but for now the focus is on whether enough of May's cabinet will remain on her side to keep the process moving – a refusal to approve the deal would indicate they view it as highly unlikely that the deal can pass parliament and immediately sets a pressure cooker of activity in motion: emergency negotiations to mitigate the impact of no-deal Brexit, a scrambling for whether and when new snap elections might be called, etc…

On the other hand, the cabinet approving the deal could suggest they see a path to approval in parliament and inspire a chunky sterling rally. There may be sufficient votes from Labour leavers and Tory hardliners to hold their noses and vote in favour of the deal provided there is sufficient room to allow a renegotiation of terms beyond the end of the transition period.

The Tory hardliners will also have to assess whether a failure to move forward jeopardizes Brexit as it potentially sets in motion a second referendum. If we find out already today that the cabinet will not vote to approve the deal, the temperature will rise very quickly as emergency negotiations will then have to proceed to mitigate the impact of a no-deal Brexit. 

The all-important cabinet meeting is set to start at 14:00 GMT today.

 





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By John J Hardy, Head of FX Strategy at Saxo Bank

Summary:  The EU and UK prime minister Theresa May's team have reached an agreement on Brexit terms, but sterling is stuck near unchanged from yesterday's levels as the next do-or-die step is today's UK government cabinet meeting to decide whether the deal can proceed to an EU summit and parliamentary vote.

The EU has reached an agreement with UK prime minister May's negotiating team, with specifics (400 pages thereof) not yet publicly available and not entirely clear, though the deal would include a UK-wide "backstop" deal that keeps all of the UK – not just Northern Ireland – in the customs union for another 20 months beyond the transition period (end 2021) should further negotiations on the UK/EU trade relationship remain at an impasse.

This was one of the main sticking points and other details will emerge, but for now the focus is on whether enough of May's cabinet will remain on her side to keep the process moving – a refusal to approve the deal would indicate they view it as highly unlikely that the deal can pass parliament and immediately sets a pressure cooker of activity in motion: emergency negotiations to mitigate the impact of no-deal Brexit, a scrambling for whether and when new snap elections might be called, etc…

On the other hand, the cabinet approving the deal could suggest they see a path to approval in parliament and inspire a chunky sterling rally. There may be sufficient votes from Labour leavers and Tory hardliners to hold their noses and vote in favour of the deal provided there is sufficient room to allow a renegotiation of terms beyond the end of the transition period.

The Tory hardliners will also have to assess whether a failure to move forward jeopardizes Brexit as it potentially sets in motion a second referendum. If we find out already today that the cabinet will not vote to approve the deal, the temperature will rise very quickly as emergency negotiations will then have to proceed to mitigate the impact of a no-deal Brexit. 

The all-important cabinet meeting is set to start at 14:00 GMT today.

 



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