GBPUSD is currently trading around 1.3275 in the US session Tuesday, jumped almost +1.37% on hopes of 2nd Brexit referendum and “delayed” or even “no” Brexit. GBPUSD made 5-months high (since Oct’18) on a report that the British PM Theresa May Theresa May is considering a plan to delay Brexit and stop the UK leaving the European Union with no deal next month, contrary to her earlier plan (at least publicly). Theresa May is under immense pressure from all sides to ensure that the UK does not leave the EU without a deal.
The report also suggested that Theresa May “may” allow her Cabinet to discuss extending the Brexit deadline beyond March 29 at a vital meeting on Tuesday and then reveal the Cabinet’s conclusions in an announcement to Parliament later in the day. Meanwhile, the UK opposition leader Corbyn of Labor party has blinked to pressure from his members of parliament and agreed to support a new/2nd Brexit referendum, a potential move to delay Brexit and opens the door to the whole thing eventually being called off (postponed or even canceled).
But, GBP slips from the earlier EU session high after Theresa May told the UK Parliament late Tuesday that she had not discussed Brexit delay with other EU leaders as the EU has made clear grounds for an extension of Article 50. As a reminder, the EU is stressing for a long term extension of another 9-33-months up to Dec-2021 to avoid flip-flops and to find an amicable solution for the thorny issues of Irish border rather than the Irish “backstops of backstops” puzzle. And for such extension, the UK has to provide a valid reason like 2nd Brexit referendum (confirmatory) or staying in a customs union, rather than for simply to re-negotiate.
It’s needless to say the proposal of Brexit extension by such long time as Dec’2021 would not be acceptable for the Eurosceptics and they will come to the line and agree to the present Brexit accord at the last minute with no other alternative options. The EU is now also stressing Theresa May to take final Parliament approval of any modified Brexit deal before calling a Brexit summit again in the late March, barely a week ago for the “Brexit moment of truth” (29th March).
As a no-deal hard Brexit is also is the last option for the EU, Theresa May is also trying to keep pressure on the EU to blink in the last minute and offer some concessions of the UK’s demand for changes in the Irish backstops legal text, although the core issues of the Irish border remain unresolved.
On Tuesday, Theresa May has promised MPs a vote on delaying the UK's departure from the EU or ruling out a no-deal Brexit, if they reject her deal next month. May promised MPs a meaningful vote on her Brexit deal including any changes she has agreed with the EU on 12th March. And if that fails, MPs will be offered two separate votes:
The 1st vote would held on the following day (13th March), on whether MPs support a no-deal Brexit - so the UK would "only leave without a deal on 29th March if there is explicit consent in the House for that outcome" The 2nd vote (if the 1st vote on 12th Feb fails), then MPs will get a chance for a vote on 14th March on requesting an extension to the Article 50 negotiation process to delay EU withdrawal beyond 29th March.
Theresa May said in the Parliament: "Let me be clear, I do not want to see Article 50 extended, because an extension can’t take no deal off the table. The only way to do that is to revoke Article 50, which I shall not do, or agree on a deal. An extension beyond the end of June would mean the UK taking part in the European Parliament elections. What kind of message would that send to the more than 17 million people who voted to leave the EU nearly three years ago now? And the House should be clear that a short extension - not beyond the end of June - would almost certainly have to be a one-off”.
At this point, the SNP's Westminster leader Blackford said May "could not be trusted" not to "dodge" another meaningful vote: "It's the height of irresponsibility for any government to threaten its citizens with these consequences. Rule out no deal, extend Article 50, but do it today - this should not be left until the middle of March”. But Theresa May surprised the House and the market by quoting a TV advertisement in her response: "If he wants to end the uncertainty and deal with the issues he raised...then he should vote for a deal—simples”.
Theresa May said extending Article 50 would require the unanimous backing of the other 27 EU member states and she had not had conversations about it with them. May repeatedly declined to say whether she would vote against a no-deal Brexit and whether Conservative MPs would be whipped to vote for or against it.
Meanwhile, Theresa May had published Brexit impact papers, assessing its readiness for a no-deal Brexit and the "very serious challenges" it would pose. May said: "I believe that if we have to, we will ultimately make a success of a no-deal. But this paper provides an honest assessment of the very serious challenges it would bring in the short-term and further reinforces why the best way for this House to honor the referendum result is to leave with a deal”.
Meanwhile, the opposition Labor party leader Corbyn said he had "lost count" of the PM’s explanations for her "grotesquely reckless" Brexit delays: "The prime minister continues to say it is her deal or no deal, but this House has decisively rejected her deal and has clearly rejected no deal. It is the prime minister's obstinacy that is blocking a resolution”.
Corbyn also added Labour will get behind another EU referendum if the party can't get its own Brexit proposals through Parliament on Wednesday. And if May's Brexit deal gets through Parliament next month, Labour wants it to be put to a public vote - with remaining in the EU as the other option.
Summary of Theresa May’s statement in the Parliament on 26th Feb:
Introduction:
“Mr. Speaker, I know what this House needs in order to support a Withdrawal Agreement. The EU knows what is needed. And I am working hard to deliver it. As well as changes to the backstop, we are also working across a number of other areas to build support for the Withdrawal Agreement and to give the House confidence in the future relationship that the UK and EU will go on to negotiate”.
Timings:
“Mr. Speaker, as the government committed to the House last week, we are today publishing the paper assessing our readiness for No Deal. I believe that if we have to, we will ultimately make a success of a No Deal. But this paper provides an honest assessment of the very serious challenges it would bring in the short-term – and further reinforces why the best way for this House to honor the referendum result is to leave with a deal. As I committed to the House, the Government will today table an amendable motion for debate tomorrow”.
“But I know Members across the House are genuinely worried that time is running out, that if the Government doesn’t come back with a further meaningful vote or it loses that vote, Parliament won’t have time to make its voice heard on the next steps. I know too that members across the House are deeply concerned by the effect of the current uncertainty on businesses”.
“So today I want to reassure the House by making three further commitments”.
“First, we will hold a second Meaningful Vote by Tuesday 12 March at the latest”.
“Second, if the Government has not won a Meaningful Vote by Tuesday 12 March then it will – in addition to its obligations to table a neutral, amendable motion under section 13 of the EU Withdrawal Act – table a motion to be voted on by Wednesday 13 March at the latest, asking this House if it supports leaving the EU without a Withdrawal Agreement and a framework for a future relationship on 29 March. So the United Kingdom will only leave without a deal on 29 March if there is explicit consent in this House for that outcome”.
“Third, if the House, having rejected leaving with the deal negotiated with the EU, then rejects leaving on 29 March without a withdrawal agreement and future framework, the Government will, on 14 March, bring forward a motion on whether Parliament wants to seek a short limited extension to Article 50 – and if the House votes for an extension, seek to agree that extension approved by the House with the EU, and bring forward the necessary legislation to change the exit date commensurate with that extension”.
Extension:
“Let me be clear, I do not want to see Article 50 extended. Our absolute focus should be on working to get a deal and leaving on 29 March”.
“An extension beyond the end of June would mean the UK taking part in the European Parliament elections. What kind of message would that send to the more than 17 million people who voted to leave the EU nearly three years ago now? And the House should be clear that a short extension – not beyond the end of June – would almost certainly have to be a one-off. If we had not taken part in the European Parliament elections, it would be extremely difficult to extend again, so it would create a much sharper cliff edge in a few months’ time”.
“An extension can’t take no deal off the table. The only way to do that is to revoke Article 50, which I shall not do, or agree on a deal”.
Wednesday’s vote:
“Ultimately the choices we face would remain unchanged – leave with a deal, leave with no deal, or have no Brexit. So when it comes to that motion tomorrow, the House needs to come together, as we did on 29 January, and send a clear message that there is a stable majority in favor of leaving the EU with a deal”.
Elsewhere, the European Council President Tusk said in a presser in Sharm El-Sheikh. Egypt on the sideline of EU-Arab summit referring to Brexit “in the situation we are in, an extension would be a rational decision. Prime Minister May still believes she will be able to avoid this scenario. For me, it’s absolutely clear that there is no majority in the House of Commons to approve a deal. We will face an alternative, chaotic Brexit, or an extension. And, the less time there is until the 29th of March, the greater the likelihood of an extension. And this is an objective fact, not our plan or our objective, but an objective fact”.
The EU diplomats now fear that for a short extension like June’19 is very risky and a “guaranteed no deal”, if British MPs fail to agree to a Brexit agreement at the end of a short extension period (even if the EU agrees to such short extension period): “It will be a no-return situation--If there is no solution (by the end of June), it is a guaranteed no deal”.
The EU diplomats think “1st July is the last day the UK could remain an EU member state without having taken part in European elections. A three-month extension of article 50 to the end of June, coupled with missing the European elections in May, would make it legally impossible for the UK to continue as a member state. The new EU parliament begins its work on 2nd July. Three months maximum and then it’s clear for everyone that it is the only extension, the first and the last. Then the UK would not have European elections, it would have to finalize everything”.
The EU diplomat also warned it would be “very difficult” for EU leaders to agree to a short extension “if there is no clarity about how that would provide an agreement in the UK. If there is no clarity, it would be better to have a long extension”.
The EU is open to longer extensions, with various options mooted from 9 to 21 or even 33-months. The longer option, until the end of 2021, is viewed as a political strategy designed by the EC to scare Conservative Eurosceptics into voting either for the withdrawal agreement or abandon the Brexit idea itself.
If the UK seeks an extension exceeding three months, Britain would have to be represented in the European parliament. The EU now stressed it has no fixed position on how long the Brexit extension should last: “We would pay a lot of attention to the business continuity argument. We have a number of important decisions this year and we cannot allow the mess of Brexit to pollute the decisions of the union”.
The EU is skeptical that a divided Commons would find in three months the consensus that has eluded MPs for more than two and a half years. The EU diplomat said: “If people cannot agree now, why would it be possible in three months? That being said, I don’t see that (EU27) heads of state and government would say no (to a three-month extension). Probably they will say- let’s do that, let’s give them a last chance”.
As per reports, during a three-month extension period the EU would accelerate the no-deal planning (under WTO) and the EU believes the last possible chance to clinch the present/slightly modified Brexit deal, or an extension, will fall on 21-22 March, when EU leaders, including Theresa May, gather for a scheduled spring summit. The absolute deadline (red line) is the European Council, casting doubt on an 11th-hour agreement in the immediate days before 29th March, when the UK leaves the EU, with or without a deal.
But Theresa May is still trying her best to leave on 29th March or by June’19 with a modified amicable Brexit deal, acceptable to all the stakeholders and the UK Parliament. Theresa May has sent the UK attorney general Cox for talks with the EU’s chief negotiator Barnier on Tuesday in an attempt to pin down further assurances that would persuade British MPs to back the current Brexit deal.
As per reports, Cox and the EU are working in three areas behind the scene:
First, the two sides are exploring changes to the non-binding political declaration that maps out the UK’s future relationship with the EU. The new version is expected to feature more details on workers’ rights and environmental protection, as May bids to win over Labour MPs. But the government continues to rule out Corbyn’s plan of a full customs union with the EU.
The second area of work is focused on agreeing on a process to agree “alternative arrangements” that could replace the contested Irish backstop. The backstop, a fallback plan to prevent a hard border on the island of Ireland, is part of the 585-page withdrawal agreement, which the EU has said is not open for renegotiation. The EU has, however, promised to explore with the UK “alternative arrangements” such as technology and efficient customs procedures that could render the backstop unnecessary.
The third area of work also seeks to quell MPs’ fears about the UK being “trapped” in the backstop indefinitely (as a European colony). The EU is ready to add more legal weight to previous guarantees that a backstop is a last-resort option. A letter from EU leaders, Tusk and Juncker, released in January, could be turned into “a joint interpretative statement” – a document with greater legal text that would be published in the official EU rulebook.
Overall, it now seems that even if the UK-EU agrees to a slightly modified Brexit accord as per the above report, it will be still tough for the UK Parliament to approve it. And thus, an extension of 3-months may be inevitable as the UK Parliament will not go for any other longer extension, considering the wide Eurosceptic public mood. But that 3-months extension could be very risky as the UK may not participate in the forthcoming EU Parliament election. Thus, any 3-months Brexit extension may not be a guarantee for an orderly exit with a deal, but it may be also to prepare both sides for a no-deal chaotic exit.
Meanwhile, amid all these Brexit chaos, the BOE governor Carney again flip-flopped on Tuesday and argued that the short term Brexit uncertainty and subsequent volatility of the UK economic data should be seen as transitory. Carney’s latest Brexit position may be contradictory to his earlier public position.
In the annual report to the Treasury Select Committee, Carney said: “The UK growth slowed sharply in late 2018 and appears to have remained weak in early 2019. The slowdown reflects both softer activity abroad and greater effects from Brexit uncertainties, which is creating a series of tensions for business, households and in financial markets. But that will only cause short-term volatility in the economic data and provide less of a signal about the medium-term outlook”.
Carney clarified: “The fundamentals of the UK economy are sound. The financial sector is resilient. Corporate balance sheets are strong. And the labor market is tight. If the economic conditions evolve in line with BOE projections, which are conditioned on a smooth Brexit, limited and gradual rate rises are likely to be needed to return inflation sustainably to target”.
On Tuesday, GBPUSD also got some boost after Carney’s statement, which may be more hawkish than expected. Overall, GBPUSD gained almost +1.15% in February after around +2.70% jump in January on hopes of delayed smooth Brexit or no-Brexit at all.
Technically, whatever may be the Brexit narrative, GBPUSD has to sustain over 1.33000 for a further rally to 1.33700*/1.33900-1.34450/1.34900 and 1.35700/1.36100*-1.36800/1.37000 in the near term (under bullish case scenario).
On the flip side, sustaining below 1.32950-1.32900, GBPUSD may fall to 1.32100*/1.31200-1.30700/1.30000 and 1.29200/1.28500 and 1.28100/1.27700*-1.27300/1.26600* in the near term (under bear case scenario).
Pivot: 1.33 Support: 1.321 1.312 1.307 Resistance: 1.337 1.339 1.3445 Scenario 1: Strong above 1.33000 and sustaining above 1.33700*/1.33900-1.34450/1.34900, GBPUSD may further rally to 1.35700/1.36100*-1.36800/1.37000 in the near term Scenario 2: Weak below 1.32950-1.32900 and sustaining below 1.32100*/1.31200-1.30700/1.30000, GBPUSD may further fall to 1.28100/1.27700*-1.27300/1.26600* in the near term Comment: Shot term range: 1.27700-1.32950