GBP/USD Forecast: Can May finally pass her deal or is it just a selling opportunity?


  • PM May will present a new Brexit deal her cabinet has discussed.
  • Sterling jumped on hopes that this time it can pass.
  • The past shows that parliament is not keen on approving an accord.

GBP/USD seemed to have ended its losing streak. After hitting a new four-month low at 1.2685, cable is currently trading closer to 1.2740. The driver is Brexit, but this time the latest development on the UK's exit may be positive.

UK PM Theresa May convened her cabinet for long hours and has eventually announced she will present a new deal at 16:00 local time, 15:00 GMT. There have been no angry resignations following the extended encounter, and that may already be a good sign: her ministers, split between the pro-Brexit and pro-Remain camps, have not left in anger. At least not yet.

Hopes are based on reports that May will offer a permanent customs union in order to woo Labour MPs to support the accord.

But can the embattled leader muster support for any Brexit formula? So far, she has failed three times, in January, early March, and late March. Moreover, May is already on her way out after she committed to setting a timetable for stepping down after the vote in parliament, regardless of the result.

Fourth time a charm?

On the one hand, her potential successor, perhaps Boris Johnson, would not like to manage the complicated task of delivering Brexit and having to deal with the political and economical consequences. On the other hand, the same people aspiring for the top job would not want to be seen as supporting and mustering support for a problematic accord.

And the opposition is not keen on backing the government. Labour is reluctant to back a "Tory-Brexit" and many other members want to scrap Brexit altogether. A customs union may not be enough at this point.

And if she goes far enough to convince Labour MPs, she will probably lose quite a few of her Brexiteers, staunch proponents and softer proponents alike.

All in all, there are good chances that May will fail once again. We will probably not have to wait until the first week of June to see how parliament votes. A clear picture of voting intentions may come as early as immediately after May's speech. And if some MPs will surprisingly keep their lips sealed until the formal legal text is published, it will take several days instead of several hours.

GBP/USD downside risk

For GBP/USD traders, the risks are skewed to the downside. The pound jumped on the hopes that May's deal will pass this time, and can fall when its odds drop and fears of seeing Boris Johnson in Downing Street and a hard Brexit resurface. 

Parliament may shock the world and support May's Brexit deal, but three past experiences undoubtedly point in the other direction. 

And if there is no majority, there may be a selling opportunity on GBP/USD.

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