Johnson launches last-gasp offensive to force Brexit deal through

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22 October 2019


The Brexit process continues to drag on with the market still none the wiser as to when the UK will actually leave the European Union.

hat was billed as ‘Super Saturday’ at the weekend turned into a complete damp squib. Following voting on the so-called Letwin amendment, the vote on the withdrawal agreement was effectively punted further down the road – putting the 31st October exit date in even more jeopardy. Boris Johnson had hoped to hold to vote on the bill on Monday although this was, as expected, denied by House of Commons speaker John Bercow.

As a result of the Letwin amendment, UK politicians will instead turn their attention to the Withdrawal Agreement Bill (WAB), legislation that brings the recently renegotiated Brexit deal into UK law. A number of votes are expected to take place from 7pm this evening, the first of which, called the ‘second ‘reading’, will be a straight yes/no vote on whether to proceed with discussions. If passed, MPs will then be asked whether to approve an intensive three day timetable for the discussions to take place. Should this then pass, MPs will have the opportunity to vote on a number of amendments, of which may include adding a clause that puts the bill to a people’s vote.

Analysis conducted by the Financial Times, based on past voting records and recent MP statements, suggests that Johnson could have a majority of 5 in favour passing his deal before the end of the month. It is essentially too close to call and could go either way by a matter of a handful of MPs. Should Johnson fail in the coming days, we expect the EU to approve the UK’s request for a Brexit extension, which may well drag the crucial decision on Brexit into early next year, with a general election probably needed in the interim.

Sterling has so far reacted in a fairly calm manner to the prospect of a mammoth few days of political wrangling. The UK currency edged slightly lower against its peers following yesterday’s Bercow ruling, although it remains pretty well supported in the 1.29-1.30 range versus the greenback. We expect traders to be on edge and volatility to be sky-high in the coming few days.

Figure 1: GBP/USD (17/10 -22/10)

Trade talks progressing, Trudeau wins election

Much of the movements in the major currency pairs continues to be driven by sentiment to risk, namely headlines on Brexit and US-China trade discussions. As far as the latter is concerned, we have had some positive comments in the past 24 hours out of both sides of discussions. President Trump stated overnight that progress towards a deal was going well. China’s vice Foreign Minister Le Yucheng claimed much of the same, saying that no problem was beyond resolution. These positive comments have lifted the dollar against the majors and also buoyed emerging market currencies, particularly those in Asia.

Elsewhere, Canadian Prime Minister Justin Trudeau managed to win Monday’s Federal Election, although fell short of garnering a majority. He is now likely to form a minority government with left-wing party support. CAD has mostly taken the result in its stride, and continues to trade around a five month high.