The appointment of Boris Johnson as leader of the UK conservative party and, consequently, the country, has put a fresh focus on the issue of Brexit. A great deal of support for Johnson’s campaign was premised on his staunch pro-Brexit stance. Indeed, the new PM has vowed to take the UK out of the EU by the current October 31st deadline with a particularly “do or die” attitude. Consequently, we have seen a jump in the likelihood of a no deal Brexit, which has weighed heavily on the GBP.
If we're to look at the appointments which Johnson has made to Cabinet, the prime minister is certainly preparing himself for a no deal scenario. Johnson has sacked many of May’s key people, who could be considered more pragmatic, and replaced them with Brexit hardliners.
Slim Majority Poses Challenges For No Deal Brexit
However, despite Johnson’s new Brexiteer cabinet, ultimately, he will still need the support of parliament to back a no deal Brexit. Given that his current working majority is just two seats, he would need to have the full support of the conservative party to succeed. However, many within the conservative party have said that they are willing to stand against the government in order to stop a no deal Brexit going through. With this in mind, Johnson would instead need to persuade a large portion of opposition MPs to vote in his favour, which again seems unlikely. Ultimately, despite the bluster and pompous, Johnson might be unable to deliver on his “do or die” Halloween Brexit.
Is Johnson Planning A Snap Election?
However, is Johnson planning something else? While the PM has ruled out the idea of an early election, the chances of a snap election this autumn appear to be rising. Johnson is currently undertaking a “love bombing” tour of the UK, visiting regions traditionally opposed to the conservative party. With current polling showing that the two traditional parties, labour and the conservatives, are under pressure from the liberal democrats and the new Brexit party, (all four parties currently polling around 20%) it seems that Johnson is attempting to sway the tide. If polling starts to look more favourable on the back of his current expedition, it certainly seems feasible that Johnson could call a snap election.
Could We See A Deal?
Another scenario is that Johnson is able to pass a deal through the house of commons. While the PM is currently ramping up preparations for a no deal Brexit, Johnson has said that he would of course rather leave the EU having secured terms. Indeed, Johnson’s popularity (which has seen support for the conservative party rising since his election) might help him succeed where May failed. It seems hard to imagine that the UK and EU will be able to strike a compromise over the current red lines, e.g. the Irish backstop issue. However, if parliament senses that Johnson is sincere over his willingness to leave the EU without a deal, then we may see some of the more pragmatic MPs choosing to back a deal that they previously were against. For now, though, with Johnson demanding the Irish backstop be scrapped entirely, it seems that such a deal between the UK and EU is unlikely.
Technical Perspective
GBPUSD has been moving steadily lower within a bearish channel formation over recent months. The decline this week has seen price breaking below the prior 1.2383 – 1.2429 lows to print fresh 2019 lows around support at 1.2115. Structural support at this level, along with the bearish channel low, has seen buyers stepping to stem the declines for now. However, the tone remains heavy and further downside is likely, with 1.1992 being the next big downside level to watch. Any retest of the 1.2383 level is likely to find sellers reloading.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.