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.

This has been a tough week for Theresa May. On Tuesday, the prime minister’s Brexit proposal suffered the biggest loss by UK government in parliament. This led to calls for her to resign. Labor leader Jeremy Corbyn immediately tabled a motion of no-confidence against her. Yesterday, the members of parliament voted on this bill and she won narrowly. This empowered her as she embarks on a difficult journey of finding a solution that will be accepted by both sides. After the vote, the sterling was little moved as shown in the chart below.  

The reason for the muted response of the currency was because investors had already priced-in the scenario. This is because all the parties in the house don’t want to go for another election at this time.

What Next?

With Theresa May’s Brexit deal failing to pass through parliament, the UK’s chances of a no-deal Brexit increased. This is because the premier must now balance the needs of the European Union with those of parliament. In other words, the bill that she brings to the house must be acceptable to the UK parliament. Already, she is facing challenges in this. After winning yesterday’s vote, the opposition party started putting conditions for them to participate in the talks. They insist that the prime minister must leave the options for delaying the vote and also for another referendum. This is because these parties want closer ties to the European Union and the membership into the customs union.

The problem is compounded by the fact that the bill they pass must be accepted by the Europeans too. The silver lining in all this is that the three sides – conservatives, opposition, and the EU – want a deal before the UK leaves.

Whatever way you look at it, it is clear that May faces the biggest test of her career. This is because she now needs to hammer a deal with the three parties in the next 10 weeks.

In all this, there are a few issues that must be addressed with the most important one being on the backstop. The backstop issue was created to address the problem of border controls in Northern Ireland and Republic of Ireland. The former is part of the United Kingdom while the latter is a member of the European Union. May’s proposal was to keep a hard border from returning by keeping the UK in a customs union with the EU. This deal gave the EU and UK until 2022 to find a real solution. The opposing side argued that the UK could not exit the backstop unilaterally. Instead, it had to have a mutual agreement with the EU. As a result, that deal would prevent the UK from making deals with other countries. They also oppose it because it would make the EU have a lot of say in the UK affairs.

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