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After an eventful week in parliament, the Brexit ball is set to keep rolling as MPs move to extend the 29 March deadline.The British Parliament concluded a series of votes on Brexit this week with an intention to extend the 29 March Brexit deadline. What remains unclear at this point is whether the UK will seek a short (two months) or a longer extension (two years). It is also not clear what this extension would be used for. A longer extension would help to fundamentally rethink and rejig the Brexit strategy, including potentially leading to a softer Brexit than the one sought by Theresa May in her initial deal with the EU. That said, we remain in flux about what exactly will happen during a long extension, and particularly what would help break the logjam (new elections? a
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Team Asset Allocation and Macro Research considers the following as important: Brexit, GBP-USD, Macroview
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After an eventful week in parliament, the Brexit ball is set to keep rolling as MPs move to extend the 29 March deadline.
The British Parliament concluded a series of votes on Brexit this week with an intention to extend the 29 March Brexit deadline. What remains unclear at this point is whether the UK will seek a short (two months) or a longer extension (two years). It is also not clear what this extension would be used for. A longer extension would help to fundamentally rethink and rejig the Brexit strategy, including potentially leading to a softer Brexit than the one sought by Theresa May in her initial deal with the EU. That said, we remain in flux about what exactly will happen during a long extension, and particularly what would help break the logjam (new elections? a referendum?).
If the formal vote on the extension fails, we will face a no-deal Brexit on 29 March. Parliament’s vote to exclude the option of a no-deal Brexit was mostly symbolic. Meanwhile, Prime Minister May will hold a third parliamentary vote on her Brexit divorce deal ahead of the EU Council summit on 21-22 March 2019, where an extension will be formally discussed. All EU countries would need to give their consent to an extension, but we do not think this will be a major sticking point. That said, European officials dither about the format of the extension. Donald Tusk of the EU Council said he favoured a longer extension, which in his mind would facilitate the redirection of Brexit (and perhaps hopefully in his view, in closer proximity with the EU than May’s deal).
From a FX perspective, we remain cautious on a three-month horizon with a projection of USD1.32, given an extension could weigh on economic activity. Furthermore, in the absence of a credible alternative, the no-deal Brexit remains the default course even in the case of an extension.
