25.10.201803:13 Forex Analysis & Reviews: The fate of the pound is in the hands of the 1922 Committee

The members of the Committee for a vote of no confidence ("1922 Committee") called British Prime Minister Theresa May "onto the carpet", who today must speak to the conservative deputies. The results of the meeting of this Committee will be largely decisive for the prime minister - either she will remain in power or leave the political Olympus. The market is looking forward to the results of this dialogue, because they affect not only the political career of May, but also the fate of Brexit, and therefore – the British currency.

The "1922 Committee" is a group of ordinary deputies of the Conservative party who do not hold any positions in the current government. They control (or rather, supervise) the election of party leaders, and can make a vote of no confidence. Theresa May, this year "answered" before the members of the Committee after a failed conservative parliamentary elections. Let me remind you that at that time the prime minister wanted to strengthen the position of conservatives and decided on an unscheduled plebiscite, but in the end the Tories lost the majority. They were then forced to form a coalition alliance with the Democratic Unionist Party, whose 10 representatives essentially ensured the viability of the May minority government in parliament.

Then the prime minister held her position and continued to head the Cabinet. However, today's political developments do not allow us to speak with confidence about its possible victory. Last weekend, the British press published a letter from a conservative MP (his name remains unknown), who urged his colleagues to rally around the idea of impeachment. According to journalists, the author of this letter is a representative of the centrist group of conservatives, who previously actively supported the actions of the head of government. After that, there were rumors on the market that many centrists moved to the camp of "hawks", and the probability of the prime minister's resignation in many ways increased.

It is worth recalling here that in September, the press got a hold of an official note from the "1922 Committee", whose members offered Theresa May to leave her post immediately after the country's withdrawal from the EU, that is, in March next year. The document also published a list of possible successors – the list consisted of almost three dozen surnames. Members of the Committee even assessed the chances of each of them for possible success. However, at that time the issue of resignation did not move from a dead end, despite the presence of an initiative group of conservatives, who again raised the issue of impeachment. But this group was too small for any action. Now the situation is somewhat different, especially if the rumors about the centrists are confirmed.

In general, according to many experts, the probability of a scenario in which May will announce a vote of confidence is now "as high as ever". According to unconfirmed information, the number of deputies who are ready to demand the resignation of the prime minister, has recently come close to the necessary target.

There are two main claims of conservatives – the lack of results in the negotiations on Brexit and unacceptable options for compromise solutions. In other words, the conservatives on the one hand are not satisfied with a slip in the negotiations, and on the other hand – May's willingness to make concessions in certain issues. It is worth noting that even those proposals that the British consider to be concessions are unacceptable to Brussels. And vice versa – the compromise options of Europeans are categorically rejected by London. Therefore, if the conservatives force Theresa May to take a more rigid and categorical position, the chaotic Brexit will be hard to avoid.

Now the negotiators are puzzled over how to reduce customs control at the Irish border, and in fact this issue remains the most difficult (but not the only one) of the unresolved problems. Earlier this week, the "hawks" among the conservatives decided to legislate a ban on Theresa May to agree to the terms of the EU on the fate of the Irish border.

Then this idea was supported by the representatives of the Unionist Party, after which the chances of adopting this law increased in many ways. This situation is also a form of pressure on the prime minister, as legislators reduce its maneuverability in the negotiation process. If the appendage to the whole "1922 Committee" expresses its vote of no confidence, the decision to resign, it can take on their own, without waiting for further action by its members of the same party.

What will happen to the pound then? In short, nothing good, as the political uncertainty in Britain for five months before the "X hour" will surely bring down the pound by several figures – and not only against the US dollar, but throughout the market. Then everything will depend on the further configuration of political solitaire, but the initial reaction of the market will be definitely negative. Therefore, the results of today's meeting of the "1922 Committee" can play a crucial role for the prospects of the GBP/USD pair.