Crispus Nyaga

Crispus Nyaga is a Nairobi-based trader and analyst. He started trading more than 7 years ago as a student. He has published in several reputable websites like The Street, Benzinga, and Seeking Alpha. He focuses mostly on G20 currencies, commodities like Crude oil and Gold, and European and American large-cap companies.

Just over two years ago, the citizens of the United Kingdom went for a vote that has changed the country greatly. The country went to vote for a yes or no vote on whether to remain as part of the European Union. The leave campaign was led by the likes of Boris Johnson and Nigel Farage while the remain side was led by the then prime minister, James Cameron. At the end of the day, a majority of the voters decided to leave the European Union where it was then second largest economy after Germany.

Today, the country is still undecided about the way forward. Since then, the pound has become a major volatile currency. After Brexit, the currency fell to a low of 1.1910 against the dollar. Today, it has recovered some of the losses and reached 1.3272 as traders place their hopes on a soft Brexit. A soft Brexit is a situation where the UK exits the EU but still retains access to the customs union. This is a scenario favoured by most European companies and the pro-remain campaigners.

On the other hand, the hard Brexit situation is where the UK exits the EU and its customs union. This is campaigned by the pro-leave campaigners who argue that it will make the UK a more global country. While the former fear that a hard Brexit will lead to more job losses, the hard-Brexiters believe that it will be an important opening to make the UK more competitive. They argue that the EU will not impose tariffs on UK goods and services because these are still governed by the World Trade Organization.

Her cabinet is also divided on the way forward. In a summit at her weekend retreat on Friday, Theresa May appears to have made a breakthrough on Brexit. Her cabinet officials struck a deal to support a soft Brexit agreement. However, on Sunday, the Brexit minister David Davis announced his resignation. On Monday, Boris Johnson too announced his resignation. The two were the most hard-line cabinet officials.

In recent days, the public sentiment on Brexit has shifted to the soft-Brexit side. This is because of the recent pressure from the biggest employers in the United Kingdom like Airbus, Honda, and BMW which have threatened to exit the market. Pro-Brexit members believe that the companies will benefit if the UK exits completely from the EU. They believe that the companies will be able to negotiate with the suppliers which will lead to lower costs of doing business. Additionally, they believe that the products manufactured by these companies will have access to the EU market because of the WTI rules.

Theresa May’s proposal is similar to the Norway model. While Norway is not a member of the European Union, it has an arrangement which gives it tariff-free access to the EU except for food and beverage products that are subsidized. May’s proposal would also include the food products. It will also include a complicated and untested arrangement that will help it avoid customs checks on the border of the EU and UK.

The proposal will also be unlikely to survive the EU as well. The EU will support its unlimited trade in goods with which the EU has a large surplus with the UK. The UK trade in services with the EU will suffer under the new arrangement. The UK has a trade surplus with the EU. The challenge for the EU is that the proposal breaches the red lines that no country will get to choose between the parts they like and those they don’t. All this means that the UK will continue having major challenges on how to go on with Brexit when it finally exits the union.

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