Political events set the agenda for the GBP/USD pair and the pound will continue to be dominated by newspaper headlines, high-profile announcements, and personnel appointments. All other fundamental factors will remain in the shadows.
British politicians took an important step yesterday towards an orderly Brexit. Members of the government were able to agree on a draft of the future deal in contrary to all doubts, a flurry of criticism and "habitual" pessimism.
The European side also expressed optimism. The parties were able to work out a mechanism by which there will not be a hard border in Ireland, according to Michel Barnier. However, Northern Ireland will obey the same customs rules as the rest of the Kingdom -with only a few exceptions (in some cases, EU rules will apply).
As for the backstop (the preservation of Northern Ireland in the single European market for the sake of a "transparent" border between Ireland), then, according to Barnier, this mechanism will be applied only at the end of the transition period (which was extended to 21 months). Moreover, the backstop is rather a "Plan B", if during this time the parties do not find a more optimal solution.
As for the backstop of the preservation of Northern Ireland in the single European market for the sake of a "transparent" border between Ireland, this mechanism will be applied only at the end of the transition period (which was extended to 21 months), according to Barnier.
The pound, together with the dollar, reacted to yesterday's events and a spike in the price led the pair to the level of 1.3070, but not for long. After a few tens of minutes, the British currency returned to the 29th figure. Today, the pound has collapsed again which is already to the borders of the 27th figure. So the traders reacted to the unexpected resignation of Dominic Raab, the main negotiator from the UK, who explained that he would no longer support the EU proposal for an indefinite period of validity of the above-mentioned backstop mechanism.
In general, the approval of the deal by the British ministers and Theresa May's confident speech at the end of the government meeting failed to convince traders that the orderly Brexit would become a reality. The prime minister has yet to go through the millstone of parliament and as she herself admits, this will not be an easy walk. Indeed, many in Britain consider the approved agreement, not a victory but a defeat for London. Some British newspapers came out with similar headlines today and many parliamentarians hold the same opinion.
Their arguments sound right. According to them, the country will not de facto leave the European Union in March next year. After all, for almost two subsequent years (that is, a transitional period), Misty Albion will have to adhere to all EU rules without the right to challenge them. In addition, London will have to pay appropriate contributions to the budget of the Alliance, as well as not hinder the movement of "labor migrants". In other words, the "real Brexit" will take place only 21 months after the country's legal withdrawal from the EU. Moreover, the 21-month transition period can be extended and, in the opinion of some politicians will most likely be extended since the parties will not be able to solve the puzzle of future relations, especially in the context of the Irish border.
All in all, the British press was not enthusiastic about yesterday's events. Journalists relayed the views of many experts, politicians, and economists. According to the general opinion, London agreed to unfavorable conditions for Britain and the country will become a "vassal" of the EU in the next two years. Not everyone blames Theresa May for this, although some say that she chose a deliberately failed negotiation tactic. Unequal conditions in the negotiation process and politicians' illusions about "light and unhindered Brexit." but most experts still talk about deeper reasons. In addition, decades of close ties between London and Brussels have made themselves felt in both economic and legal.
Against the background of such criticism, a legitimate question arose - is there any prospect for Theresa May in parliament? Despite all the above, there is a chance for approval of the deputies of the Lower House are, although they are very slim. The fact is that with all the shortcomings approved by the ministers of the transaction, the only alternative is the chaotic Brexit. For a long time, May repeated the mantra that "the absence of a deal is better than a bad deal." Now she uses this phrase in a mirror image, claiming that Brexit without a deal will plunge the country into economic chaos.
This argument can play a key role in the parliamentary discussion of the presented agreement. By and large, if the deputies vote against the proposed deal, they will vote for the chaotic exit of the country from the EU with all the ensuing consequences. There is another option of a repeated referendum, however, according to the overwhelming majority of analysts, it is extremely unlikely.
Thus, despite the complexity of the contractual design, the Lower House of Parliament will face a simple and uncomplicated choice either they support the "bad deal" or they will take responsibility for the chaotic Brexit. Considering the above, a disappointing conclusion can be made. The pound will continue to be dominated by newspaper headlines, high-profile statements, and personnel appointments. All other fundamental factors will remain in the shadows.
The material has been provided by InstaForex Company - www.instaforex.com