GBP/USD. Turns of the British currency: Johnson repeats the path of Theresa May
Passion for Brexit reaches its zenith. In the afternoon, the pound paired with the dollar soared to the borders of the 30th figure (that is, to 5-month highs), responding to a statement by European Commission President Juncker that the deal between London and Brussels is "ready." But literally an hour later, the pair collapsed 200 points down after the first comments by representatives of the British Parliament. The opposition did not skimp on epithets: in particular, Jeremy Corbyn called the draft deal "corrupt", adding that Johnson's dealings were "even worse than Theresa May". However, despite such harsh comments, the market still expects the British prime minister to submit the draft deal to the House of Commons on Saturday.
For the sixth consecutive day, the pound is subject to strong volatility, showing unprecedented price fluctuations, both in the direction of growth and a downward course. The last time such powerful price spurts were observed in October 2018, when the parties were one step away from signing the deal. The pair jumped from the 34th to the 42nd figure in a few weeks. But then the events did not unfold so rapidly, although in general, the situations are of a similar nature.
At that time, Michel Barnier, the chief negotiator from the European Union, was the main newsmaker. Exactly a year ago, he said that the deal could already be concluded during the EU summit, which, like this year, was held on October 17-18. Brussels and London then were able to find a common denominator in many key issues, moreover, within the framework of Theresa May's Chequers plan, which the future Prime Minister Boris Johnson so eagerly criticized. May proposed to solve the Irish question in a different way: she agreed to establish checkpoints on the border and introduce "certain administrative procedures". EU representatives refused to consider other options, and interpreted the proposed conditions as a compromise. As you know, the deputies of the House of Commons categorically rejected the proposed conditions, failing the vote three times.
The Irish question is still a central issue today. On the one hand, Johnson made more significant concessions from the European Union: the customs border will pass through the Irish Sea, and the same customs rules will apply in Northern Ireland as in the rest of the UK. But on the other hand, such concessions did not satisfy the Northern Irish Unionists. After a two-day political bidding, the DUP issued an official statement declining the deal. In their opinion, the proposed agreement "does not meet the long-term interests of Northern Ireland", and in the short term, residents of this region may face a significant increase in prices.
As mentioned above, Labour also criticized Johnson's deal. And not just because of the Irish border. According to Jeremy Corbyn, the economic part of the agreement threatens the food security of Great Britain, and can also lead to "violation of the rights of workers and environmental standards." Also, according to the Labour leader, the deal will be a blow to the British health care system. Representatives of the Scottish National Party (which has 35 members of the British Parliament) have joined Johnson's critics, adding that they will not vote for the deal.
Thus, at the moment it is not clear how the prime minister plans to "push through" the deal through the millstones of Parliament. Without the support of the Youth Democratic Party, the Labour Party and the Scottish nationalists, he will have to rely on the consolidation of Conservative deputies (20 of whom he expelled from the party for indiscipline) and representatives of other political forces.
At the same time, according to information from the British press, Johnson in Parliament may express his readiness to violate the law, obliging him to ask Brussels to postpone Brexit. This information may be the usual "bluff" on the part of the current prime minister, but, given the odiousness of his personality, such a scenario cannot be ruled out.
In general, according to most experts, if Johnson fails to agree on a deal in Parliament, he will initiate early parliamentary elections to bring the draft deal back to the new House of Commons.
Thus, Johnson will have a difficult battle in the walls of Parliament. Judging by the dynamics of the pound, traders do not lose hope of agreeing on a deal this Saturday: otherwise, the GBP/USD pair will return first to the middle of the 24th figure, and then (less impulsive) to the levels of annual lows, that is, to the bottom of the 20th figure. If a "miracle" happens and the prime minister finds votes in Parliament, the pound paired with the dollar will fly up to 1.35-1.37, up to the 40th figure, after the deal between London and Brussels is officially agreed. And although these price values look abnormally high, it is worth recalling that on the eve of the 2016 referendum, the GBP/USD pair was trading in the area of 1.43-1.46, and after the announcement of the results, the plebiscite plunged to 1.25-1.27 in a few weeks, followed by a decline to the bottom of 20- x figures. "The return trip to an upward direction" may not be so impulsive, but at the same time, the resolution of many years of intrigue will allow the pair to grow by at least 500-600 points. As the saying goes, The Show Must Go On ...
Analysis are provided by InstaForex