Against the background of general price turbulence in the foreign exchange market, the pound-dollar pair stands out among other dollar pairs. Despite the intraday "ups and downs" of the US currency, the GBP/USD pair is steadily trading within a wide-range flat, without leaving the boundaries of the 21st figure. To be more precise, traders have identified for themselves the boundaries of the price band (1.2120 –1.2190), within which the pair reacts to events in the outside world.
Such phlegmatism, of course, is associated with Brexit. The Brexit topic is of absolute priority for the pound, so all other fundamental factors (even of a resonant nature) are of secondary and indirect importance for GBP/USD. Figuratively speaking, the pair lives in its own coordinate system, where the prospects of the "divorce proceedings" between London and Brussels determine the price movement vector, while US and geopolitical events are very optional.
As you know, Boris Johnson and the leadership of the European Union could not find a common denominator in their positions, and therefore the likelihood of the implementation of a "hard" Brexit increased significantly. After the corresponding "exchange of courtesies", it became clear that Brussels did not intend to revise the text of the deal (primarily regarding the back-stop mode), while for Johnson the issue of the Irish border is of strategic importance. The prime minister of Great Britain created the so-called "military cabinet" within his government, whose primary task is to prepare the country for withdrawal from the EU without concluding a deal.
Although all these events were very expected (taking into account the previous rhetoric of the parties), the tangible reality of the hard Brexit significantly affected the pound - for example, it collapsed to two-year lows against the dollar, finding itself in the region of the 20th figure. Responding to these grim prospects, the British currency paused before a possible further decline in the price range of 1.15-1.20. Despite almost 100-point fluctuations within the 21st figure, the GBP/USD pair, by and large, is now frozen flat, waiting for further political events.
The fact is that Brexit's topic has recently narrowed, in fact, to one question: can the British Parliament prevent Johnson from implementing a hard scenario, or will the prime minister find a legal way to "get around" the House of Commons? Naturally, the same question is being asked on Downing Street. So, according to the representative of the government Dominic Cummings, the British Parliament is not able to stop Brexit. He acknowledged that deputies may raise the issue of a vote of no confidence in Johnson in September (when the meeting resumes). But at the same time, he noted that the head of government can set the date of elections, for example, November 1 - or on any other date after October 31. According to Cummings, theoretically, the prime minister can ignore the position of the deputy corps, bringing with it the initiated "mission" to the end.
However, Johnson's opponents also foresee possible scenarios, so they are preparing for appropriate countermeasures. And it is worth noting that the opposition has its own "trump card". According to the head of the Labour Party, his party is ready to initiate a vote of no confidence in the prime minister in September. Not only four opposition parties, but also a significant part of the Conservatives can support their initiative. Let me remind you that during the signal voting, many Tories did not support the "hard" Brexit option and are still opposed to this idea.
There are 650 deputies in Parliament, while Johnson can count on the support of only about 100 of them. If the entire House of Commons votes for distrust of the government, then the representatives of the Conservative Party will need to form a new government within 14 days, which could secure the support of the majority of MPs. Otherwise, Parliament is dissolved and early elections are announced. But the prime minister sets the date for new elections, and judging by the statements of his team's representatives, he will appoint them either in November or December.
At the same time, Johnson may refuse to leave his post until October 31, even if a vote of no confidence is passed to him. Formally, he has the opportunity to take such a step, but in this case, Johnson will ignore the constitutional customs of Britain, and the deputies will be forced to appeal to the queen, who has the right to dismiss the prime minister immediately. According to many analysts, such a scenario is unlikely (the last time a similar situation occurred was almost 200 years ago) - but given Johnson's eccentricity and unpredictability, the option of a political demarche cannot be ruled out.
In addition, according to observers, before a vote of no confidence (or instead of it) is passed, the Parliament can, at the legislative level, oblige the prime minister to agree with Brussels a new Brexit postponement date. It is possible that Johnson himself could resign if Parliament wins the legal confrontation by blocking Britain's exit from the EU on October 31.
Thus, the pound reacted to the dispositions of the parties (Johnson and Brussels), but slowed down in anticipation of political battles in the walls of the House of Commons. As you can see, the situation is ambiguous, given the specifics of the legal relationship of state institutions in Britain. Nevertheless, short positions of GBP/USD should be treated with caution now: as soon as the British Parliament enters the matter, the pound can get significant support.
The material has been provided by InstaForex Company - www.instaforex.com