Brexit Update: Pound Expected to Rise

21

January, 2019

AK Equity Group

London markets inched up Monday, as investors awaited Prime Minister Theresa May’s latest Brexit proposal.On Monday, May will try to break through the political stalemate by presenting a new Brexit proposal that will win over greater support in parliament.

What’s shaping the markets?

It is expected that Britain’s exit date from the EU will be pushed back past March 29. At the same time, fears are receding over a “no-deal” Brexit, as the perceived likelihood of this outcome fades.  With the probability of a hard Brexit declining, the Pound Sterling should rise from its historic low, making gains through the weekend.2

Brexit Plan B

As expected, the prime minister suggested that she was prepared to move on the Irish backstop. This may gain her more support, as there were a cohort of MPs who had indicated that the Irish backstop was the issue preventing them from backing the deal.3  May also offered to waive the £65 fee for EU citizens who want to stay in the UK. She held firm on saying no to ruling out “no-deal,” and no to extending Article 50 or allowing a second referendum. It is widely believed that a second referendum would again lead to Brexit, possibly with an even wider margin, as anti-immigration sentiments are still running high in Britain.4

It seems the prime minister’s hope is that a change to her position on the Irish backstop will help win over enough support to get the deal through parliament.

In the meantime, signs of progress towards the UK’s inevitable departure from the EU continue to appear. The United Kingdom and Spain have signed an agreement which will assure that British and Spanish citizens living in each other’s countries will keep voting rights after Brexit.5  This deal is the first of its kind between the UK and one of the EU member states, with many more similar deals expected to follow.

The current Pound Sterling valuation, as predicted by analysts consensus forecasts, is for GBP/USD to be trading in the mid-1.30s, about five to six cents higher than its current level in the 1.28/9s.6

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