What happens now in the Brexit drama?

Author: Justin Low | Category: News

What does it mean with parliament voting yes and no?

For the first time, UK lawmakers were able to get behind a Brexit deal (in principle) but they could not agree on the timetable to push through the needed legislative measures for the deal to be ratified and implemented.

That saw the pound go for a bit of a ride as it inched higher before getting dragged lower with Boris Johnson saying that he will "pause" the WAB legislation as he seeks further talks with the EU on a Brexit extension.

Where do we go from here?

As things stand, the "pause" means that Johnson's Brexit deal is essentially in limbo. The ball now moves over back to the EU to decide what happens next on the extension.

If they do not grant one, then we head towards a no-deal Brexit on 31 October.

As unlikely as that is, there is still a slim chance on the table and with politics these days, can you really be surprised by something like that?

Anyway, assuming European member states do the logical thing and extend the Brexit deadline, the ball gets thrown back to Johnson and the UK.

What sort of extension are we looking at?

This is where there is still a degree of uncertainty hanging over markets.

A short technical extension (days/weeks) will leave Johnson with little choice but to try and drag his WAB across the finish line and past the necessary legislative hurdles.

It sounds positive but at the same time it could all fall apart if parliament amends the bill to something different during the process. Can he accept that? Only time will tell.

Meanwhile, a longer extension (January 2020 at least) is likely to see Johnson call for a general election to try and sort out the mess once and for all.

In short, there are still some imponderables to deal with and markets are left "hanging" at the moment with any decision still not in the offing.

What does this all mean for the pound?

On the balance of things, I actually think the events in Westminster yesterday are "positive" for the pound. In the sense that it is not going to transmit to a significant/dramatic fall in the currency in the near-term.

The worst-case scenario was that Johnson would have pulled the WAB altogether but he "paused" it and made no mention of a 31 October push after he was defeated.

It shows that he is resigned to the fact that we're headed to an extension but what form of extension depends on how talks go over the next few days - and of course how he chooses to deal with yet another impasse in parliament.

As things stand, hopes of getting this all done are still on the table and now that parliament has finally got behind a Brexit deal for the first time - even if it is in principle - perhaps the optimism may be justified at the end of the day.

As such, the pound may be weaker as some uncertainty creeps in and a bout of the immediate optimism has been dented, but there is still hope and I reckon that will be what buyers will cling on to over the next few sessions.

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