financetom
British Pound
financetom
/
Forex
/
British Pound
/
British Pound: Odds Slashed on General Election in 2018, Analysts Views on the Outlook vs. the Euro and US Dollar
News World Market Environment Technology Personal Finance Politics Retail Business Economy Cryptocurrency Forex Stocks Market Commodities
British Pound: Odds Slashed on General Election in 2018, Analysts Views on the Outlook vs. the Euro and US Dollar
Mar 22, 2024 2:19 AM

- Raab new Brexit secretary

- Odds of new election in 2018 now at 6/4

- "Don't extrapolate UK political risks from GBP's price action today" - ING

- 60% of semi-soft Brexit - Berenberg

Above: New Secretary of State for Exiting the European Union, Dominic Raab. Image © Gov.uk

Odds have been slashed by bookies that a General Election will be called in 2018 following a slew of ministerial resignations over the course of the past 24 hours.

Theresa May's government has plunged into the worst crisis of its tenure with the resignation of Secretary of State for Exiting the European Union David Davis citing fundamental disagreements with the government's stated Brexit policy.

Davis was followed by deputy, Steve Baker, and another Brexit minister Suella Braverman.

Davis has since been replaced by Dominic Raab, widely considered to be an up-and-coming member of the party. Raab has been described as a "passionate" Brexiteer and the appointment confirms May intends to stick with a strategy of maintaining a balance of Brexiteers and Remainders in her cabinet which should promote the sense that party unity could yet be achieved.

Betting markets have nevertheless slashed odds from 6/1 yesterday, into just 6/4 today, that a general election will be called before 2018 is out according to Oddschecker, the betting market probabilities collator.

The general public is meanwhile seen backing an election being called this year, with a whopping 90% of bets being placed on the election taking place before 2019.

“Just when Theresa May finally thought that she had made a breakthrough in her Brexit negotiations, this resignation late on Sunday night could spell a turbulent week for the PM," says Oddschecker spokesperson George Elek. “Punters are sensing that a coup could be on the horizon, and it could be yet another walk to the polling station for UK voters.”

Big promotion for Dominic Raab to #Brexit Secretary with a key position in the Cabinet. He has clearly committed to @theresa_may that he will support the Chequers plan, but he will have an uphill task persuading the EU-27 that this is the best way forward for UK/EU relations.

— Andrew Sentance (@asentance) July 9, 2018The Pound has bounced up and down in the wake of the news, first opening higher on the view that May had gone 'soft' on Brexit following her ministerial conference held at Chequers at the end of the previous week that saw an apparent unity break out over the government's Brexit strategy.

However, it fell on news of Davis' resignation, apparently disliking the uncertainty his move posed. But, at mid-morning we are seeing Sterling holding decent gains, apparently betting that the only way forward is a soft Brexit:

The Pound-to-Euro exchange rate is 0.21% higher on the day at 1.1337 while the Pound-to-Dollar exchange rate is 0.40% higher at 1.3345. Indeed, Sterling is one of the best performing global majors at the start of the week.

However, analyst Viraj Patel with ING Bank N.V. cautions about reading too much into the Pound's moves as an interpretation of the political landscape:

"Don't extrapolate UK political risks from GBP's price action today. GBP is not 'higher' because of 'lower' political risks, it's higher because of a weak Dollar, positive global risk environment. Equally GBP didn't move lower because UK political risks aren't material yet."

"Uncertainty may keep a lid on GBP for now, but softer Brexit hopes means risks are tilted towards the upside," adds the analyst.

Initial reactions to the government's 'unified approach' or 'third way' proposals on the future trading relationship between the UK and EU was that it presented a move towards a 'soft Brexit', which is widely-held as being positive for Sterling.

The proposed strategy was to negotiate a free trade zone in goods with the EU, which would require the UK to stick to EU rules for goods and collect tariffs on the EU’s behalf for goods that pass through the UK heading for the EU.

The thinking is this strategy would allow the Irish border problem to be settled while keeping the UK single-market intact.

"Whichever way you shuffle the deck, the hand remains the same," says Kallum Pickering, an economist with Berenberg Bank. "In theory, the resignation of the minister in charge of the UK’s Brexit strategy should have major implications for the Brexit outcome. In reality, however, Davis had become increasingly pushed towards the outer rim of the UK’s relevant decision makers in recent months."

Berenberg say there is now a 60% chance of a semi-soft Brexit

"Last year, the EU27 had a £95bn goods surplus with the UK. As long as Irish PM Leo Varadkar gives the nod, the rest of EU27 can probably agree to an augmented version of PM May’s proposed free trade area in goods, in our view. If the UK insists on ending free movement of people, we do not see any realistic prospect of the EU extending such a deal into services trade," adds Pickering.

In Berenberg's base-case for a semi-soft Brexit, UK potential growth would fall to 1.5-1.7% from +2.0% inside the EU.

Derek Halpenny, European Head of Global Markets Research at MUFG, says the pound is clearly vulnerable to the downside if this resignation turns into a domestic political crisis.

"Single-handedly, Boris Johnson could perhaps do that but the limited sell-off of the pound on this news suggests market participants believe this resignation will be an isolated incident. But don’t expect any surge for the pound if that if that proves to be the case. We have yet to hear how Brussels will respond to this deal, which appears to contain plenty of “cheery-picking” of Single Market access," says Halpenny.

Advertisement

Get up to 5% more foreign exchange by using a specialist provider to get closer to the real market rate and avoid the gaping spreads charged by your bank when providing currency. Learn more here

Comments
Welcome to financetom comments! Please keep conversations courteous and on-topic. To fosterproductive and respectful conversations, you may see comments from our Community Managers.
Sign up to post
Sort by
Show More Comments
Related Articles >
British Pound (GBP) LIVE: Sterling Set for Fresh Bounce vs USD, Bank of England Risk Ahead
British Pound (GBP) LIVE: Sterling Set for Fresh Bounce vs USD, Bank of England Risk Ahead
Mar 22, 2024
Last Updated: 02 April 2014 Updated: Our Live coverage shows the UK pound to be in a period of consolidation at the start of April 2014. With the March PMI series missing expectations the GBP has found little by way of impetus. However, all eyes are on the release of...
The Pound "Shouldn't be Haunted by the Ghosts of 2022" Says Deutsche Bank
The Pound "Shouldn't be Haunted by the Ghosts of 2022" Says Deutsche Bank
Mar 22, 2024
Above: Image © Pound Sterling Live, original picture by Simon Dawson / No 10 Downing St. On the eve of the UK budget, a Deutsche Bank analyst tackles the question of whether GBP investors ought to fear the return of the bond vigilantes and a repeat of the 2022 episode...
British Pound Sterling Heads Sideways as Equity Markets Rally
British Pound Sterling Heads Sideways as Equity Markets Rally
Mar 22, 2024
By Gary HowesToday's Exchange Rates Below are the spot exchange rates as of the last update: Pound to euro exchange rate: Unchanged on a day-to-day basis at 1.2040.Pound to US dollar exchange rate: 0.01 pct down at 1.6390.Pound to Australian dollar rate: 0.36 pct higher at 1.8364.Pound to New Zealand...
British Pound (GBP) LIVE: Sterling in Steady Recovery After Services PMI Delivers a Blow
British Pound (GBP) LIVE: Sterling in Steady Recovery After Services PMI Delivers a Blow
Mar 22, 2024
Last Updated: 07 April 2014 Updated: The British Pound (GBP) is stable as we move into the second week of April. Selling on global equity markets has seen some relief being enjoyed against the commodity dollars. Meanwhile, we continue to see consolidation vs the Euro and US dollar. This period...
Copyright 2023-2025 - www.financetom.com All Rights Reserved