GBP/USD Forecast: May's Phyric could send it far lower - 3 reasons

Theresa May will stay at her job as Prime Minister of the UK after winning an internal confidence vote by 200 to 117. However, May may sing her swan song and there is no reason for her to be the Dancing Queen.

Here are three reasons why this is not the Christmas Present the PM had hoped for. 

1) The numbers are bad

The margin of 83 votes may seem broad at first sight. However, here are a few figures that cause a rethink:

• Political analysts estimated that having 80-100 votes against her would be considered OK. 117 is not OK. 
• More than a third of her party opposes her.
• The hard-Brexiteer European Research Group (ERG) has only some 50-60 members. This means that roughly the same number of non-affiliated MP's also wanted to oust her.
• She only has the support of 200 MP's, a third of the House of Commons. The opposition parties and the DUP are against her. Passing Brexit is unlikely. 

2) She said she will not run again

May promised lawmakers that she will not seek re-election in 2022, the official time for the new general elections. She made this pledge in order to convince the swing voters to support her. It may have saved May from defeat, but this save was not convincing. 

More importantly, she opened the door to her exit. The crack can turn into a wide hole.

If she is ready to go in 2022, why not sooner? 

3) Responses are not that great

Jacob Rees-Mogg, the leader of the ERG, calls May to go the Queen and tender her resignation. This is not surprising. Opposition leader Jeremy Corbyn also described the government as being in chaos, unsurprisingly as well.

The most important response will come from the European Union. Given the broad internal opposition, there is no reason for Merkel and Macron to offer any significant assurances. It seems that even significant concessions will fail to pass muster in Parliament. If there were doubts, the vote cemented the end of the Brexit withdrawal deal. 

EU leaders cannot save her from failing after this result and they do not want to. They were never willing to let the UK eat the cake and leave it whole.

GBP/USD - Still not priced in

The Pound rode higher on the hopes the challenge would be an opportunity for May to crush the opposition. Cable also rose on USD weakness related to improvement in US-Chinese trade talks.

The results came out as Wall Street closed and as Asia is only beginning to wake up. Sterling dropped, but the move was relatively muted.

All in all, the Phyric Victory is far from being priced in. GBP/USD traded as low as 1.2478 earlier in the day and there is no reason it should not visit these levels once markets digest the numbers and volume rises.