Brexit: How May may still get the deal through in a 3-pronged approach, buying opportunity on GBP/USD?

PM May is moving away from renegotiating the Irish Backstop.
Her tactics may get the original deal over the line.
GBP/USD may rise if a hard-Brexit is avoided, not only delayed.

Yohay Elam FXStreet

UK PM Theresa May moved away from totally renegotiating the controversial Irish Backstop. In a speech in Belfast, the PM insisted that there would be no hard border and that she is "not suggesting" leaving without an insurance policy, the backstop. She just said there should be changes that should pass muster in Parliament.

Her words were seized upon by hard-Brexiteers, which see her as reverting to supporting the backstop. She also downplayed technological solutions that Brexiteers are working on. May only said that technology could play a part.

What may May be up to?

By moving back towards the deal and the European approach, she may lose the support of hard-Brexiteers that prefer no deal over anything that includes a backstop. But while her original Brexit agreement was defeated by a whopping 230 margin, it may still pass.

Here is her potential three-pronged approach:

1) Receive further assurances from Brussels

May meets European Commission President Jean-Claude Juncker on Thursday in Brussels. The EU was adamant in rejecting any changes to the legally-binding text but was always ready to provide assurances and clarifications.

She may receive additional promises in Brussels and tout it as an achievement. Such a move may help convince the softer Brexiteers to support the deal.

2) Run-down the clock

Another tactic which is to run down the clock. At the time of writing, there are 51 days left until March 29th, Brexit Day. The PM rejected any delay and also the EU is not keen on pushing back Brexit beyond the European elections at the end of May.

Companies are ramping up on contingency plans, and the economy is showing signs of a slowdown ahead of the exit.

The danger of a no-deal may convince additional members of her Conservative Party to support the deal. Moreover, it may convince some opposition Labour MPs to support the accord they rejected to avoid a hard Brexit.

3) Woo Labour MPs

In parallel, Downing Street has been working with several Labour MPs on a different approach. They have been wooing members from constituencies that voted to Leave. Their constituents have been asking them to "get on with the job" regarding Brexit.

One of the reasons for those citizens to vote for Brexit was a protest vote after feeling left behind for years. May reportedly offered them additional funds for their districts which they can tout as achievements.

Buying opportunity on GBP/USD?

All in all, May could still muster enough support from her own party and from the main opposition party to get her over the line. Nothing is guaranteed, but markets could move only the thoughts of such an outcome.

The best outcome for markets would be to cancel Brexit altogether or at least have a second referendum. A delay of Brexit would also be welcome, but also the original deal is better than the growing risk of a hard, cliff-edge Brexit.

The pound remains pressured as the clock ticks to Brexit Day, but things could change if there is a ray of sunshine for May.

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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