Various scenarios for Brexit - How will the GBP move?

The EU Court of Justice in Luxembourg just announced that Britain is free to revoke its so-called Article 50 notice any time before it’s due to leave the bloc on March 29. The decision can’t be appealed.

This ruling comes at a crucial time during which, Prime Minister May is seeking a vote to get her deal for an orderly Brexit out of the EU approved from Parliament.

Although the UK now has a deal, the probability that May loses the vote is quite high.

Whatever the outcome may be, we will surely see high volatility in the Forex market. Today we look at all the scenarios the UK may face from here up till the 29th of March of next year, and the probable effects on the GBP.

Scenario 1:

Vote accepted by UK parliament  

Orderly Exit : Sterling to rally as this is a very unexpected outcome and currently not priced in. A huge dose of uncertainty is removed, at least in the short/medium term.

Scenario 2:

Vote rejected by UK parliament

a) Disorderly Exit: Pound falls massively (BOE to hike interest rates quickly to combat inflation and the currency’s decline). I expect the fall to be similar to what we witnessed after the Brexit referendum (see chart).
b) No confidence vote on May -> General Election: Pound to rally
c) Second Referendum: Pound to rally strongly

What’s the probability?

At the moment it seems that the most probable scenario is that the vote is rejected however it is still not clear if this means a second referendum, new election or a disorderly exit. Whatever will happen, the current environment is creating a lot of opportunities in the forex market for traders.

What is your take on this? Let us know in the comments section below!

 

 

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