What will happen to the pound?

Pound still follows the news headlines as it sharply reacts to any more or less significant informational guide. On the eve of the key vote, the European Union made a serious curtsy towards Britain and this fact can change the whole situation.

Thus, tonight, the key event of this week will take place at approximately 4 to 5 o'clock London time. The British Parliament will express its opinion on the "updated" deal with the European Union while the British currency today is reeling from the very morning. The GBP/USD pair will either rose to the boundaries of 1.33 and then went down to the base of the 30th figure. Such volatility is fully justified because the most important question at stake is whether the agreement will be approved by the House of Commons or the negotiating saga will continue. In the morning, it became known that there was a ghostly chance of negotiating a deal and although this assumption looks incredible given the previous rhetoric of British parliamentarians and EU representatives, certain prerequisites for such a scenario exist.


Late yesterday evening, Theresa May arrived in Brussels, where she met again the head of the European Commission, Juncker. Negotiations ended far after midnight but their results gave some hope to traders. Both in Europe and in Britain they started talking about a long-awaited breakthrough that can put together the general puzzles of the "divorce process". Thus, the British government said that May was able to agree on amending the Agreement on withdrawal from the European Union.

The essence of these changes is reduced to the lack of control on the border between Northern Ireland and the Republic of Ireland. This is a temporary measure until 2020. Having developed a legal mechanism of control on the Irish border, Britain and the European Union must conclude a new agreement. Going to such concessions, Junker warned that there will not be another chance for the British, either they vote for the deal today or there will be no deal at all; no additional interpretations, clarifications, guarantees or memorandums. Thus, Juncker hinted that the postponement of Brexit would not solve anything. In the month of June or July, deputies will receive the same draft of the transaction since the European Union will not move a bit from their positions.

Initially, the pound initially reacted quite positively to this news, updating the multi-week price high. However, then optimism was replaced by pessimism as rumors appeared on the market that this proposal of Europeans would not find its support within the walls of the British parliament. In addition, according to the same rumors, the Prosecutor General of Britain, Geoffrey Cox, presented to the government legal assessments of the updated deal and these estimates are pessimistic. Thus, the deal was threatened again, as well as the expediency of extending the negotiation period.

However, according to a number of European journalists, the head of the European Commission is disingenuous. In fact, Brussels is considering another scenario, according to which Britain will remain in the European Union until 2020 or 2021 by prolonging the operation of Article 50 of the Lisbon Treaty. According to press reports, Europe is developing this option in case the parties will not be able to find a compromise after the postponement of Brexit until the beginning of the summer. A broader time frame is needed for the next or extraordinary parliamentary elections to be held in Britain and Brussels and negotiated new terms of the deal with the new government, which in turn was appointed by the new parliament.


The leitmotif of this scenario is obvious. In Europe, we are confident that the idea of Brexit no longer has the former support of the British, confirmed by the conducted opinion polls. Hence, the next convocation of parliament will be less rigid about future relations between London and the EU. There is one significant flaw in this scenario: the British should at least initiate such a long delay. The implementation of this clause may be problematic since the country will actually take not "an extra minute" to complete the negotiations but will completely cancel the will of its citizens.

In other words, the long-term prospects of the negotiation process look too vague, therefore, the market responds only to the news flow in the "here and now" mode. Hence, such strong volatility for the pair amid the morning news about Juncker's new offer has allowed the pair to update price highs, while the subsequent legal assessment of the Prosecutor General returned the pair to the bottom of the 30th figure. According to unofficial information, Geoffrey Cox warned cabinet ministers that there were still some risks for Britain: London. According to Cox, there will be no legal levers to get out of the backstop. Such comments have reduced the likelihood of approval of the transaction in the framework of today and given the recent statements by Juncker, the postponement of Brexit will only postpone the problem by several months but will not solve it in essence.

However, the chances of approval of the transaction in the framework of today still remain, despite the position of the Prosecutor General. The European Union made a rather serious curtsy towards Britain and this fact can change the whole situation. Everything depends on what moods are among the conservatives after the updated Juncker proposal. In turn, the pound will continue to follow the news headlines, sharply reacting to any more or less significant information. Talking about any predictions in such conditions is impossible because if the pendulum still sways towards the approval of the transaction, with which this option is by no means excluded, the GBP/USD pair will not only catch up but at the same time, update the annual maximum price.

The material has been provided by InstaForex Company - www.instaforex.com