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15.10.201909:54 Forex Analysis & Reviews: GBP/USD: the fate of Brexit and the pound may be decided in the next two weeks

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Exchange Rates 15.10.2019 analysis

The GBP/USD pair is still trading near three-month highs, although there is less time before the expiration of the next Brexit deadline. Investors are counting if not on a deal between London and Brussels, then at least on the extension of the transition period until January 31, and possibly until the summer of next year.

Queen Elizabeth II of England during the traditional throne speech at the opening of the new session of the British Parliament said that the exit of the Foggy Albion from the European Union should be carried out before October 31, and this is the main priority of today's government.

"My ministers will work on new rules in the field of fisheries, agriculture, and trade to take advantage of the maximum opportunities offered by the exit from the EU," she said.

The Queen's resonant statement shows her support for the course of British Prime Minister Boris Johnson, who, from the very moment of his appointment in July, promises to withdraw the country from the alliance on October 31 with or without an agreement.

British parliamentarians are extremely concerned about the possibility of Brexit without a deal and are trying in every possible way to hinder the implementation of this scenario. The struggle in the House of Commons between B. Johnson and the opposition led to the emergence of the so-called "Benn law," according to which the government will be obliged to ask the EU to delay Brexit if London and Brussels do not reach a "divorce" agreement until October 19.

It should be noted that the British government program presented by Elizabeth II must go through the parliamentary approval process. Legislators may well vote against her and start a motion of no confidence in the cabinet of B. Johnson. The last time such a precedent took place almost 100 years ago, however, the current situation in parliament hints at a possible repetition of this.

According to Diane Abbott, the shadow secretary of the interior of Great Britain, Elizabeth II's speech is just a conservative political program that they're unable to implement.

"I am sure that B. Johnson used the Queen's message as part of his election campaign before the possible parliamentary elections," she said.

According to recent polls, conservatives are ready to support more than 33% of voters, and Labor – 27%. Thus, in the case of early elections, B. Johnson can even strengthen his position in parliament.

The EU summit will be held on October 17-18. This summit will be an opportunity to either endorse a deal plan agreed by London and Brussels or, if no agreement is reached, consider whether to move the UK out of the block.

"The European side has already stated that Boris Johnson needs to work out many more details, and he may not have enough time for this before the EU summit, which begins this Thursday. Nevertheless, before the end of the month, a certain memorandum of understanding may appear on the table, and for a complete study, it will take at least three more months of delay. However, will there be enough votes in parliament? At the same time, we are still worried about the prospect of a recession in the UK, with or without an agreement," Saxo Bank analysts said.

Even if the United Kingdom manages to strike a deal with the EU, the country's economic problems will not allow the pound to rise above $1.30, according to currency strategists at JPMorgan.

"In this scenario, the GBP/USD pair is likely to rise to 1.30, but it is unlikely to rise higher. The fact is that even an orderly Brexit will harm the British economy and, consequently, on the pound. The most "bullish" scenario for the British currency is the appointment by the parliament of the country of a new referendum on Brexit. This would revive hope that Misty Albion would remain part of the EU, and expectations of a referendum could send the pound against the US dollar to the $ 1.40 region," they said.

Viktor Isakov
Analytical expert of InstaForex
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