Forex Analysis & Reviews: 08.03.2019 - The fate of Britain and the...

08.03.2019 03:22 PM

The fate of Britain and the pound will be decided on Tuesday

Next week, the volatility of British pound will increase as traders expect an unpredictable Brexit vote. It is noted that on Tuesday, March 12, it will become a kind of "moment of truth" for the UK and the European Union. On this day, the whole world will know whether Britain will either accept the conditions of the European Union, which is almost unbelievable, or the EU will give way to the United Kingdom. Also, another possibility is to postpone the start date of Britain's exit from the union at a later time from March 29 of this year. Theoretically, one can even expect a second referendum on the issue of British exit from the EU. However, pound fluctuations are inevitable. The most likely scenario for movement of the GBP/USD pair will range at $1.30-$1.32.

Recall that earlier this week, negotiations between officials of Great Britain and the European Union ended without an agreement. Theresa May sent the Attorney General and member of the ruling Conservative Party, Geoffrey Cox to Brussels to bring process the necessary changes to the Brexit deal to pass the agreement through the country's parliament.

London's desire to change the position of the backstop, which is a safety plan that guarantees a clear border between Ireland and Northern Ireland. Many British parliamentarians are unhappy with this part of the Brexit deal.

Cox expects that European officials will agree to an independent arbitration of the backstop controversial position so that it can be terminated without the approval of the European Court as Brussels is against such decision.

Meanwhile, May have several days at her disposal to return the revised agreement to parliament. Each side expects the other to make concessions.

At least for now, the risk of "hard" Brexit is lessened. If the Prime Minister's deal is rejected on Tuesday, the parliament is more likely to vote for an extended exit date, while pro-European lawmakers will try to force the government to soften or cancel the "divorce". In addition, reducing the threat of exit without a transaction reduces the need for concessions from the euro block.

According to a report of Bloomberg from cited sources, the EU is ready to seek compromises. The news brought into life the British currency, which briefly soared by 40 points.

European officials are trying to break the deadlock negotiations and make the British a new proposal. According to sources, it implies more concessions from the bloc than promised by the European Commission Chairman Jean-Claude Juncker and EU President Donald Tusk in the January message.

However, the new initiative still does not fully meet the requirements of England, which cooled the ardor of pound fans. In general, the mood remains positive and prolongs hope and the EU is ready to wait for a response from Britain and reciprocal concessions.

In case of "hard" Brexit

Despite the optimism, the "hard" exit scenario is not excluded. This development contributes to the fall of the pound against the dollar in the $1.20 region as suggest by currency strategists who participated in the Reuters survey.

Nevertheless, the majority of respondents expressed confidence that the parties would be able to reach a compromise. Their average forecast for the GBP/USD pair at the end of March is $1.32.

Another survey by Reuters showed that the likelihood of a "hard" Brexit fell to 15%. However, in the opinion of one respondent, the pound may collapse to parity in the event of an exit without a deal.

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Natalya Andreeva,
Pakar analisis InstaForex
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