Brexit chaos makes pound attractive

Heads of government are expected to sign the Brexit deal this weekend at the special summit of European countries. However, the real battle has yet to break out.

The 28 EU leaders will meet in Brussels on Sunday 25 November for a special summit on Brexit. There is a good chance that the heads of government will then agree to the divorce plans with the United Kingdom, which Jean-Claude Juncker and Theresa May want to negotiate on Saturday 24 November.

Even if both sides have signed, there is no guarantee that we can safely move on to March 29, 2019. May also has to pilot the terms of the agreement through the House of Commons. A very tough battle awaits her there at the beginning of December, which may be an interesting entry point for her the pound yields.

Reluctantly agree
About 1 week ago, the British currency bounced when May announced a draft agreement. That profit quickly evaporated when the terms of the agreements became known. Although the British government reluctantly agreed to the agreements, several ministers resigned in protest.

Party members are even trying to file a no-confidence motion against her. It is not yet possible to collect the necessary signatures for this. Within the coalition parties, however, there is a lot of resistance to the plans.

Everyone dissatisfied
The party from Northern Ireland does not agree with the fact that there will be no hard border with Ireland, but a kind of backstop with the British mainland. Party leader Nigel Dodd does not miss an opportunity to oppose the deal and to remind May that she needs the party's 10 lower house members for a mood.

On the other hand, Scottish parliamentarians disagree with the benefits Northern Ireland would receive. Meanwhile, Brexiteers are strongly opposed to extending the current situation, so that there is room for more specific trade agreements after Brexit. Britain has to transfer money to the European Union and adopt new legislation, but has no say in this.

hit it hard
All the ingredients are in place for an explosive ballot in the House of Commons. If the agreement is rejected, we still risk heading for a hard Brexit. In that scenario, the pound will undoubtedly be hit hard. Traders are already taking into account that the currency could then fall towards an exchange rate of 1,20 (with the dollar). The pound has not fallen below this level in 30 years.

At such times, it is important to keep a cool head and pay attention to the potential of the British economy and the way in which various (political) crises have been averted in Europe over the past decade. If the panic is complete, then it is probably more attractive to position a pound recovery than to sell the currency in a blind panic.

Lawrence Martins

Laurens Maartens is a currency expert at the Dutch Payment and Exchange Company (NBWM). Maartens analyzes current currency developments and also provides lectures and training in the field of currency management.

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