GBP/USD: 3 Scenarios For The Brexit Vote In Parliament

  • The UK Parliament will vote on the Brexit deal on December 11th.
  • Uncertainty is high, but the government is unlikely to win.
  • There are three scenarios with three different reactions for the Pound.

Nearly two and half years after the British people shocked the establishment by voting to leave the European Union, an agreement has been reached, and Parliament votes on it.

The UK House of Commons has begun its lengthy debate on the Brexit agreement that Prime Minister Theresa May reached with the European Union. The discussions will culminate in a vote scheduled for Tuesday, December 11th. The exact hour is unknown.

The vote has significant implications for the UK economy, and also on some euro-zone countries. Very high volatility is expected in the Pound, and considerable action is also warranted in the Euro.

Divided Parliament

The ruling Conservative Party does not command an absolute majority and lost the support of the Democratic Unionist Party (DUP) that provided support on a “supply and confidence” arrangement. The 10-strong Northern Irish party objects the agreement on the Irish backstop which gives the territory a different status than the rest of the UK.

Quite a few members of the PM’s own party also oppose the agreement. Staunch supporters of Brexit criticize the dependency of the UK on EU rules and regulations and state that Britain will turn into a “vassal” state instead of taking back control. The legal advice included the words “endure indefinitely in the customs union” do not help alleviate concerns.

The opposition parties vowed to reject the agreement as well. The Labour Party leans on the economic projections that project that the UK will be worse off under any Brexit scenario. However, some members of the main opposition party may “rebel” and vote with the government.

The Liberal Democrats are staunchly pro-European and want the UK to remain in the EU. The Scottish National Party (SNP) also support remaining and are frustrated with Northern Ireland’s special status, contrary to Scotland’s.

3 Scenarios

In the first day of the debate on Tuesday, December 4th, the UK government was defeated in three votes. The most significant one is that if MP’s reject the deal, they will decide on the next steps. With a pro-Remain majority, the Pound reacted positively. According to the opinion of the Advocate General at the European Court of Justice, Briain can unilaterally revoke Article 50, or in other words, reverse Brexit.

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