Delaying and praying seems to be the right summary of Theresa May’s latest strategy. Before yesterday’s statement there was always a date to look forward to that at least held the potential of bringing progress in Brexit negotiations. After the vote in the House of Commons was cancelled, there seems no clear timeline for the process. As pointed by Simon Harvey, analyst at Monex Europe, sterling quickly fell victim to this “almost existential level of uncertainty” and has broken significant support levels in the $1.25 range after falling consecutively to fresh lows.
The PM will now go to Brussels and attempt a Hail Mary to try and fudge the backstop mechanism in order to gain a majority in Parliament from factions within her own coalition. However, the timeline for a vote is now up in the air, and despite her commitment to seal more favourable terms, the pound continues to sell off with little guidance forthcoming. For analyst Harvey, by delaying the vote, the timeline is squeezed further before the March deadline.
The consequences of the next Parliamentary run are now far greater, and possibly explain why sterling is factoring in a far more negative narrative. The scenarios going forward are now more extreme as the doomsday clock continues to tick.
Her current attempt to appease both sides has failed. May must, therefore, drop predefined red lines in order to force the draft Withdrawal Treaty through Parliament.
The EU however has repeatedly made clear that this is the final deal and it would not be open for further negotiations. It will be interesting to see whether the EU will change its mind, as the risk of a disorderly no-deal Brexit is rising as time is running out. According to economist David A. Meier at Julius Baer:
The EU’s response to May’s delay of the vote will show whether the deal can be resurrected, giving it a chance of ratification, or whether May has just kicked the can down the road.
Sterling will ultimately lack any impetus to rally before the year is out, especially with the possibility of the meaningful being pushed back to as late as January 21st.
