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Trade on the market reaction
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Access a range of major, minor and exotic pairs – including EUR/GBP
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How will the uncertainty surrounding Brexit affect the markets?
Brexit has been causing widespread market uncertainty, partly because no one yet knows what the final outcome will be. Volatility is high on major EUR and GBP currency pairs, and traders should keep track of any movements of the FTSE 100 and FTSE 250, which have become unpredictable in recent months.
Should a deal be agreed, it is likely that stability will return to the markets. As well as this, liquidity could well increase as market participation picks up amid signs of reduced volatility.
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Markets to watch during Brexit
As ever in times of uncertainty, investors look to gold. After experiencing a spike following the initial referendum in June 2016, gold’s price has largely settled over the last few years. That is not to say that it couldn’t spike again, especially given the uncertainty surrounding the next steps for the UK’s departure.
The effect on shares since the Brexit referendum has been mixed. Some companies have benefitted from a weaker pound and improved economic outlook, and others have struggled. For the most part, the FTSE 100 has remained volatile since June 2016, while the effects of Brexit as far as individual securities are concerned have been quite varied.
Sterling fell against the euro after the referendum result was announced. However, the EUR/GBP pair maintained a steady rate of between lows of 0.87 and highs of 0.90 from December 2017 to the beginning of January 2019. Immediately following the defeat of the government’s departure agreement on 15 January, the pound entered a strong recovery. What will happen in the coming days and weeks remains to be seen, making EUR/GBP a key pair to watch.
The FTSE 100 and FTSE Mid 250 both rose over the course of 2017, thanks to weak sterling performance and an improving UK economy. However, in 2018 both were volatile as a result of sell-offs on global equity markets, and the increasing uncertainty surrounding Brexit negotiations and the proposed deal. The trading relationship with Europe is critical to many firms’ future earnings, so indices are very likely to be affected by the final outcome of Brexit, whatever that might be.
Brexit: what are the options?
Time is running out for the prime minister to secure a deal, though several options remain on the table.
Indicative votes offer British legislators the opportunity to voice their opinions on the best way forward in the Brexit negotiation process. In the past, popular proposals have been a confirmatory referendum on any final deal, as well as a customs union arrangement with the EU once the UK leaves the bloc.
Extending article 50
An extension to article 50 gives the UK and EU more time to work out a final deal with the aim of giving it the best chance of assent in the Commons. Following a summit of European leaders on 10 April, article 50 was extended until 31 October 2019, which now stands as the official departure date. The UK will be allowed to leave before this deadline, so long as the prime minister’s deal is ratified by the Commons.
Revoking article 50
Another option as far as article 50 is concerned is for the UK to revoke it. The European Court of Justice (ECJ) has ruled that the UK can do this unilaterally, meaning that the decision to do so remains entirely at the UK’s discretion.
Fourth vote on the prime minister’s deal
Although it has already been defeated three times, Theresa May could bring her deal back for a fourth vote at some point in the future. Whether another vote on her deal will take place depends on how different the deal is to its three failed predecessors; and its success will depend on whether Labour, the DUP, and the prime minister’s own Eurosceptic MPs will back it.
While EU leaders have said that the withdrawal agreement itself is not up for renegotiation, there are several points that could still be tweaked or incorporated into it. One such example would be the possibility of a customs union arrangement with the EU, which is not in the current version of the withdrawal deal. Indicative votes could provide some insight into what can be tweaked in order for the deal to get a majority.
A general election remains a possibility because some in Whitehall see it as a means through which the current parliamentary deadlock can be broken. Whether a general election will be called remains to be seen, with no one really knowing which way the balance of power would tip.
The option of a second referendum on EU membership has been gaining popularity since the initial result was revealed – in part due to claims that the leave campaign misled voters. A growing number of MPs are pursuing a national vote on the final agreement with the EU, something which the prime minister has been unwilling to agree to.
If a deal has not been approved in the House of Commons by the time that the departure date arrives, a no-deal Brexit is the default legal option. This would see the UK leave the EU with no arrangements for trade or free movement in place. The last two years of negotiations have been a concerted effort by both British and European leaders to avoid a no-deal departure.
When will Brexit happen?
The current and official date for the UK’s departure is 31 October 2019, but the UK will be allowed to leave earlier than this date, so long as the withdrawal agreement is ratified by the Commons.
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1 For forex based on number of primary relationships with FX traders (Investment Trends UK Leveraged Trading Report released August 2018).
2 Negative balance protection applies to trading-related debt only, and is not available to professional traders.