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21.10.201912:54 Forex Analysis & Reviews: GBP/USD: The House of Commons has made a knight's move, but Johnson continues to stand his ground

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Exchange Rates 21.10.2019 analysis

The story of Britain's exit from the European Union more resembles a soap opera: the characters change, the conditions change, and when it seems that the end is near, there are some twists and turns again.

Last Thursday, London and Brussels agreed on a Brexit deal. The House of Commons was due to hold an emergency meeting on Saturday to decide whether or not to approve the agreement. However, parliamentarians – instead of approving the document – obliged the head of the government of the country, Boris Johnson, to ask the EU for a new delay of Brexit – this time, until January 31, 2020.

On October 19, three letters were sent from the office of the British Prime Minister to Brussels: Benn's statutory motion for three months postponement without the Prime Minister's signature, clarification from the UK Ambassador to the EU and a personal letter already signed by B. Johnson, in which he expresses his disagreement with the extension of the release of Misty Albion from the alliance.

"The decision to accept the petition, the sending of which is dictated by the parliament, remains at the discretion of the European Council, as well as the proposal of an alternative period of delay. However, my position and the position of the government, which I made clear from the moment I took the post of Prime Minister and made it clear to Parliament today, is that a further delay will harm the interests of the United Kingdom and our EU partners, as well as our relations," – B. Johnson wrote. He called on the EU to bring the "divorce" process to an end and move on to the next stage of relations, building them based on a long history of friendship and good neighborliness.

The EU will postpone the UK exit from the bloc until February if the country's parliament does not approve the deal this week, The Times reports, citing its sources.

Meanwhile, the British government is still preparing to leave the EU without a deal.

"This is our firm position. We have the capacity and the means to do it," said Michael Gove, who was appointed by B. Johnson to be responsible for preparing this scenario.

Shadow Brexit Minister Keir Starmer, in turn, said that the Labor Party will support this week's proposal to hold a second referendum on the United Kingdom's exit from the EU.

"This transaction, or any other, must be taken over by the people, who must decide whether we accept this transaction and leave the EU or reject it and remain," he explained.

The GBP/USD pair started the new trading week with a decline of 0.5% amid the continuing uncertainty around Brexit but quickly managed to recover to 1.30.

The reason for increased optimism was the recent statements of representatives of the Democratic Union Party of Northern Ireland (DUP), according to which they refused to support amendments to the customs union. Previously, the DUP had intended to unite with the Labor Party and vote for these amendments, which would block B. Johnson's draft deal and prevent the UK from implementing its trade policy.

Credit Agricole specialists expect that in the medium term, the pair GBP/USD will rise to 1.36.

At the same time, they recommend using any attempts to drop the British currency to buy it at more favorable levels.

"Brexit postponement news should reassure investors since the risk of Misty Albion leaving the EU without a deal would be minimized in this case," Credit Agricole said.

Viktor Isakov
Analytical expert of InstaForex
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