Brexit vote -5 scenarios and GBP/USD reactions after May loses

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The UK government delayed the vote that was scheduled for December due to prospects of a defeat. PM Theresa May toured Europe in an attempt to secure concessions about the Irish backstop issue, but her counterparts were only willing to provide clarifications but no changes to the legal text.

She was hoping that the ticking clock towards Brexit Day on March 29th would push MP’s to support the agreement as the clock is ticking towards the March 29th Brexit date. The vote is now scheduled for January 15th.

However, it seems like the government is set to lose.

Parliament secured the right to curb the government’s powers in case of a no-deal Brexit, in a humiliating defeat for the government. What will happen next? What will May do if the deal is rejected?

  1. A second vote: Assuming the margin of the loss is not huge, lower than 50 MP’s, May may try to continue trying to convince her European counterparts to cede a bit more ground on the Irish border. She then succeeds in pushing the EU to her direction and a few MP’s wary of losing their seats to vote for the deal. It passes the second time around and the pound rallies.
  2. Second referendum: After the Brexit deal is rejected, Labour files a no-confidence motion that fails as well. Many Conservative MP’s do not want fresh elections. With no decision on Brexit nor elections, Parliament reaches the conclusion it cannot decide and returns the Brexit issue to the people. Markets may cheer, especially as there is a majority for Remain according to polls. However, everything is possible, and volatility is set to remain high.
  3. No deal Brexit: This is the default option if nothing changes. As March 29th gets closer, fear of shortages of food and medicine, long lines of lorries and concerns of a collapse of the economy could send the pound plunging. The UK and the EU do not want it, but if nothing else happens, the nightmare scenario becomes more real.
  4. Snap election: In this scenario, Labour’s no-confidence motion succeeds, perhaps accompanied by May’s resignation and a realization that only a new Parliament can resolve the deadlock. The markets will weigh a pro-market but pro-Brexit government against the odds of a softer approach to Brexit but a hard left PM Corbyn as two bad options. The pound will likely fall sharply.
  5. Article 50 delay: With the deadline approaching rapidly, the government may opt for delaying Brexit. The EU will likely agree. Despite the ongoing uncertainty and “kicking the can down the road,” a delay of Brexit day will probably be cheered and push the pound higher.

What are the probabilities of all these scenarios? Given the mess in British politics, it is hard to say which option has the highest chances. One thing is sure: the current low volatility in GBP/USD will give way to action.

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

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