Yesterday, the ongoing battle over Brexit continued in the House of Commons. The members of parliaments voted on a number of amendments that were intended to reduce the possibility of a no-deal Brexit. One of the amendment required the prime minister to postpone article 50 until the end of the year if she was unable to pass a deal by February 28. The amendment that prevailed required her to go back to Brussels to renegotiate the deal she had passed with the union.
As noted before, the main issue with the current divorce bill is that it did not address properly the issue of backstop. This deals with how to handle with North Ireland, which is part of the United Kingdom and Ireland, which is part of the European Union. A disorderly exit may lead to more problems at the border because it potentially mean that supply chains will be disrupted. Today, it takes a few minutes for a truck to pass the border. With a no-deal Brexit, it may take hours or days.
The European Union has indicated that it will not renegotiate the deal to accommodate the new requirements from the United Kingdom. However, they could cave in to Theresa May’s demands now that she has the full backing of her party. In addition, they too don’t want to go through a no-deal Brexit. However, it is still difficult to imagine what will happen in the next 60 days, which makes trading the sterling a bit difficult.
After yesterday’s vote, the GBP/USD pair declined to a low of 1.3060, which was lower than yesterday’s high of 1.3200. On the one-month chart below, the pair’s price has moved below the 42-day and 21-day EMAs while the commodity channel index has moved from the oversold level to 34 as shown in the chart below. There is a likelihood that the pair will resume the upward trend as investors hope for a compromise deal between the UK and EU.