Brexit turns on its head during tumultuous day in UK government

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5 December 2018


Tuesday proved to be a tumultuous day in the entire Brexit process, with a number of significant developments having potentially very meaningful repercussions for the UK’s EU exit.

he chances of an avoidance in the ‘no deal’ Brexit scenario and the possibility that Brexit doesn’t take place at all have both increased in the past 24 hours. The two major developments that we had yesterday were as follows:

  1. The European Court of Justice (ECJ) issued an opinion that suggested the UK may be able to revoke Article 50, subject to the necessary conditions.
  2. The so-called Grieve Amendment was passed in a UK government vote. This means that should MPs vote against the withdrawal act, as is expected during Tuesday’s vote, Theresa May would have 21 days to return a motion on how to proceed.

While the ECJ opinion is not a full ruling, these two developments alleviate concerns over a ‘no deal Brexit’ and make the scenario that the UK leaves the EU without a deal that bit more unlikely. It also opens up the possibility of a so-called ‘People’s vote’ on EU membership, should next week’s vote not go in favour of the Prime Minister.

The uncertainty is rife and, with all options seemingly still on the table, the Pound has reacted accordingly. Sterling has been subject to a number of wild swings this week, initially rallying on Tuesday morning, before sharply reversing its losses as trading progressed as investors greeted the growing possibility of no Brexit altogether.

Eurozone composite PMI revised upwards

Currency markets in general were dominated by Brexit news yesterday, with the EUR/USD driven almost entirely by news out of the UK government. The US Dollar itself has been under a bit of pressure in recent sessions against its major peers, largely due to last week’s more cautious than expected assessment on the US rate hikes from Fed Chair Powell.

On the macroeconomic front, this morning’s Eurozone PMIs were actually fairly encouraging, bucking the trend of recent disappointing data out of the bloc. The composite PMI for November was revised upwards to 52.7 from the near four year low 52.4 preliminary estimate. This does, however, still remain very low by current standards and there remains the risk that European Central Bank President Mario Draghi takes on a more dovish stance during his December meeting communications.