GBP/USD Forecast: How the Brexit anarchy may provide a buying opportunity on a different approach from the EU
|- GBP/USD dropped on May's request for a short extension.
- The EU's cold response added additional pressure.
- Things can turn around quite quickly and may provide a buying opportunity on cable.
Under pressure from Brexit-supporting ministers, UK PM Theresa May asked for a short extension to Article 50: only up to June 30th. The embattled PM would like to use the time to try and pass the Brexit deal for the third time. Her goal is that the UK will not have to participate in the EU elections on May 26th.
The British Pound was pressured on the news.
And then came the cold response from the EU. European Commission President Jean-Claude Juncker reportedly urged May not to specify a date in her letter and also offered two options. One option was a short extension until May 23rd, just before the vote. The second option was an extension until the end of the year.
A cold response came from Paris in addition to Brussels. The French Foreign Minister said his country would not support an extension without guarantees that the deal will pass. This puts any expansion in jeopardy.
GBP came under additional pressure and hit a weekly low at 1.3146.
But the saga continues.
The case for a turnaround
Anything can happen at the EU Summit. While the UK has the most to lose from a no-deal Brexit, the EU has a lot to lose as well, and this includes France, that has close trading relations with the UK.
The European Union may reach the logical conclusion that the UK Parliament cannot approve the Brexit deal in a third vote after two rejections. The options that are apparently on the table are supporting the extension until June 30th or rejecting it and sending the UK out without a deal.
An approval would be wishful thinking that the deal can be approved. A rejection will follow the French line that if the agreement cannot pass, there is no use for the extension.
However, the EU may take a third approach, based on May's words in Parliament. In the PMQ debate earlier in the day, when presenting the short extension, PM May hinted that she might step down if the UK does not leave the EU by June 30th.
So, the EU may conclude that if May quits, a different political constellation could make a big difference on Brexit.
And thus, It could decide that it extends Article 50 until the end of the year, opening the door to the UK's participation in the EU elections.
And while markets do not like uncertainty, they hate Brexit. Under this scenario, GBP/USD has room to rise on such a development.
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