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22.05.201900:29 Forex Analysis & Reviews: Theresa May's bait: British prime minister's new tactic disappointed traders

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Today, Theresa May stirred up markets, providing unexpected support to the British currency. The pound jumped more than 100 points against the dollar when traders heard a phrase about a new referendum from the British prime minister. The upward impulse did not receive its continuation - almost immediately the pair pulled back to the area of the 27th figure.

The "devil", as you know, lies is in the details, therefore, in the face of the House of Commons, May began to specify the conditions for holding a repeated referendum, optimism in the market began to sharply fade: too many "buts" and too many "ifs." As a result, it became clear that the head of the British government was trying to maneuver between the interests of the Conservatives and the demands of the Labour Party, hoping to get the votes of both parties. But such political overtures were not to the liking of market participants. Traders doubt that the new strategy of the government will find its response in the camp of the two largest deputy factions. According to some experts, the opposite is more likely, in which both Labour and most Conservatives will turn away from May.

Exchange Rates 22.05.2019 analysis

The main problem is that the British prime minister has linked the issue of the second referendum with the question of the deputies' approval of the deal with the EU. May promised the MPs to put the question of a referendum to a vote - but only after they had voted on the first reading for the agreement. She also assured MPs that they would be able to vote for different options for future trade relations with the EU. At the same time, she threatened the deputies with early elections or the cancellation of Brexit as a whole, if they rejected the proposed project for the fourth time.

The updated version of the draft itself will be published in the coming days, and a more detailed justification of the proposed changes will be published within 7-10 days. Therefore, today the deputies could only listen to the prime minister's oral report. In words, May tried to "please" all political forces on which the fate of the deal depended – she referred to the issues of ensuring the rights of workers (a key issue for the Labour party), the backstop mechanism (a nod to the Unionists), the protection of the environment, and, of course, a temporary membership in the customs Union with the EU.

On the one hand, the prime minister really tried to combine the interests of the majority of political forces represented in Parliament in one speech. But on the other hand, it was this fact that alerted traders. After all, it is obvious that certain concessions for the sake of Labor will be hostile to the Conservatives. And vice versa - the points satisfying the interests of Tories will be rejected by the opposition As a result, in pursuit of the votes of both parties, May may be left with nothing, even despite the promise of a "incentive prize" in the form of a vote for a new referendum.

There is one more nuance that weakens May's position on the eve of the fourth vote on the draft deal - this is her proposed resignation. According to the British press, she assured members of the Parliamentary "199 Committee" (a group of British conservative deputies who are authorized to express a vote of no confidence in the current prime minister) that she would leave her post regardless of the outcome of the vote. It is supposed that May will leave the posts of the head of the Conservative Party and, accordingly, the prime minister during the summer. Therefore, now the deputies are forced to think not only about the conditions of the deal with the EU, but also about how and who will fulfill these conditions.

Exchange Rates 22.05.2019 analysis

Here it is worth noting that the current leader of the political race is ex-Foreign Minister Boris Johnson - the most zealous and consistent supporter of hard Brexit. This is the most undesirable candidate for Laborites and/or for supporters of maintaining close business contacts with the European Union. In this context, the leader of the Labour Party rather accurately compared Theresa May's Cabinet of Ministers with the Titanic in the final minutes of its ill-fated voyage. At the same time, he expressed doubts that the agreements reached with the May government would "work" under her successor (especially if this is Johnson). Although he voiced these words after the failure of negotiations between the government and the Labour Party, his position hardly changed in the context of the upcoming voting for the deal.

Thus, today there are no clear reasons for optimism. The dynamics of the pound-dollar pair fully reflects the sentiments of market participants, who rightly doubt that May's policy "to reach an agreement with everyone" will end in another failure.

The only hope for GBP/USD bulls is a political "bait" in the form of a vote on a new referendum. Many deputies are really lobbying for this idea, and they may be ready to give their vote for the deal in exchange for the opportunity to vote for a repeated plebiscite. The mood of the deputies will be known in the coming days, when MPs "digest" the information received today. In turn, the pound will dutifully follow the news flow regarding the prospects for the fourth vote, ignoring all other fundamental factors.

Irina Manzenko
Analytical expert of InstaForex
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