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brexit FX politics theresa may

Brexit Goes From Raging Dumpster Fire To Dunkirk

Train wreck.

There’s bad news on Monday for all the senior personnel who were planning on using the “Honey, I’ve got to work all night on Tuesday because I can’t trust the 20-somethings to trade sterling when the Brexit vote comes down” excuse to spend the night with their mistress.

Theresa May has decided to pull the vote, presumably because she finally accepted the fact that a landslide defeat was inevitable. Sterling was confused for about 5 minutes, and then dove to an 18-month low.

GBPUSD

(Bloomberg)

Here’s the big picture:

GBPUSD2

(Bloomberg)

10-year yields in the U.K. hit their lowest since August as Gilts rallied on the prospect of still more uncertainty around an already hopelessly indeterminate ordeal.

Gilts

(Bloomberg)

As the headlines rolled in, the EU Commission reiterated that the deal on the table is the only deal May is going to get and that this cannot (and will not) be renegotiated. But that certainly won’t stop her from trying. In fact, assuming the vote is in fact delayed, she’ll probably be asking for fresh concessions from Brussels later this week.

To be clear, if she can’t figure out a way to get this thing through Parliament, this entire 2 1/2 year farce will converge on a binary option of reversing the whole thing (which would probably entail holding a new referendum) or else moving ahead with the dreaded “hard Brexit” and everything that would go along with that. Obviously, May’s future as PM is in jeopardy either way.

Nobody is feeling particularly good about this situation on Monday. At this point, the pound looks set to come under pressure irrespective of what happens. The EU isn’t going to renegotiate, May cannot win the vote in Parliament and “worse” (if you’re a Brexiteer anyway), the EU Court of Justice today ruled that the UK can put an end to this nightmare anytime they want by just revoking Article 50. Of course that would probably require holding a second referendum to make sure the decision could be pitched as consistent with the will of the people.

On the other hand, the Article 50 decision could paradoxically allow May to point to the prospect of a unilateral revocation of Article 50 as a reason for euroskeptics opposed to her deal to vote for it anyway (i.e., well, if you don’t vote for this, the whole thing might be reversed).

Good luck trading this farce.


 

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