The Pound Sterling is currently making good progress. Economic data published at 10:30 a.m. german time from Great Britain was less bad than expected. This gives the Pound a push. It rose from 1.2250 this morning to 1.2357 against the U.S. Dollar now. So, everything fine? No. The situation is not that simple!
Although the British Parliament has pushed through a law that de facto prevents a hard Brexit (without a treaty with Brussels), at least for the date 31st of October 2019. But we have to take a closer look. According to the Telegraph, Prime Minister Boris Johnson’s advisors met yesterday to work out a strategy on how to somehow ignore the law. Everything is conceivable these days. And this is how it works: Johnson could ask the EU for an extension of the Brexit deadline according to the law. At the same time, however, he could write a letter to Brussels that he himself, as prime minister, is against an extension.
And we think: We forget the EU side completely. People are constantly talking about whether the British will leave at the end of October or later, etc. But whether the EU even allows an extension of the deadline beyond 31st of October is more than questionable. Brussels repeatedly stressed that they would not renegotiate. And if there is no signal from London (including from Parliament) that substantial new negotiations are to take place – why should Brussels again extend the deadline?
Pound bet on blockade success against Johnson
But back to Boris Johnson. Already on Friday he made hints. According to him, the law forced upon him by parliament only provides for a postponement of Brexit in theory. Think about it. Johnson is currently trying with all his might to hold new elections for mid-October. For this, Labor would have to give its consent (2/3 majority in parliament). But it does not look like that, at least not today at noon. So: Could Boris Johnson simply say: “Hey dear Parliament, I asked for a postponement as required by law. But I also said to Brussels that as prime minister I don’t want a postponement.” Would it be that simple?
Then Brussels could say that they can’t take part in such a circus, and zap, UK leaves the EU on 31st of October without a deal. Hard Brexit. The currency market currently seems to be convinced that Parliament’s blockade of Boris Johnson is very likely to prevent the hard Brexit. But we shouldn’t be so sure. The chart shows Pound vs USD since August 13th. In the last five trading days, the pound has risen from under 1.20 to 1.2357. A damn strong, clear bet on Parliament’s victory over Boris Johnson. A dangerous bet!