Friday the 13th – A Brexit Update

GBP/USD, H1

Political wranglings continue over the ruling of a Scottish court that Prime Minister Johnston’s “proroguing” (shutting down of Parliament for a period) was illegal, with opposition parties demanding that Parliament be reopened and with Johnson insisting that it won’t. The UK Supreme court will make a final ruling on Tuesday and its is suspected that the government will get its way. Meanwhile, with Johnson at risk of failing to deliver his “do or die” pledge to achieve Brexit on October 31, with the option to leave without a deal at that date now outlawed, there is a sense that the normally thick-skinned Johnson is feeling the pressure to make a deal with Brussels on what would be a revamped version of the already-on-the-table Withdrawal Agreement. The EU has dangled the option of limiting the Northern Ireland backstop, which would effectively wedge a customs border between Northern Ireland and the rest of the UK. That’s the best option for Johnson if he is serious about pulling off a Halloween Brexit. Otherwise he would have to come up with alternative border arrangements that would satisfy the EU’s demands of maintaining the integrity of both the single market and the Good Friday Peace Agreement, which looks impossible, and EU officials have been signalling that they would prefer to negotiate on the “other side” of a no-deal Brexit rather than give way on these red lines. Publicly, yesterday Johnson reemphasized the whole of the UK will leave on October 31 and the DUP rejected any idea that they were softening their stance and that an “Irish Sea” border would be any more acceptable now that it was when first raised under Mrs May’s administration

There won’t likely be sufficient support in Parliament for whatever Johnson comes up with, unless he yields to demands for there being a second, confirmatory referendum, which would be politically risky for him as he heads into an election with the Brexit Party snapping at his heels. The most likely scenario remains for the Brexit deadline to be pushed out to January 31, with a “people vs parliament” general election November or December.

Sterling continues to benefit from the “no-deal Brexit Bill” and the potential softening of Johnson’s rhetoric. Cable breached 1.2400 this morning (first time since July 26) as the USD came under post ECB & pre-Fed pressure, GBPJPY broke 1.3400 (first time since July 29) and EURGBP  has traded to lows of 0.8933.