Above: Boris Johnson is current favourite to replace Theresa May as Prime Minister. File image © Gov.UK, Foreign Office
-Snapshot: GBP/EUR: 1.1439 -0.10% | GBP/USD: 1.2770 -0.20%
- Labour quits cross-party talks
- Little prospect of parliament agreeing an alternative Brexit plan
- Johnson likely to be next Conservative leader
- 'Brexit at all costs' seen on October 31
An embattled Pound finds no let up ahead of the weekend as news comes through that talks between Labour and the Conservatives to find a cross-party Brexit deal that could pass through the House of Commons have broken down.
Labour Party leader Jeremy Corbyn confirmed in late morning London that the talks "have gone as far as they can", news that sent Sterling down to fresh four-month lows against the Euro and Dollar, ensuring the UK currency is on course to endure its worst week of 2019 while also notching up its worst daily run against the Euro in history.
Corbyn says the six weeks of cross-party discussions could not carry on due to "the increasing weakness and instability" of the government.
In a letter to the Prime Minister, Corbyn says:
"I am writing to let you know that I believe the talks between us about finding a compromise agreement on leaving the European Union have now gone as far as they can.
"It has become clear that, while there are some areas where compromise has been possible, we have been unable to bridge important policy gaps between us.
"Even more crucially, the increasing weakness and instability of your government means there cannot be confidence in securing whatever might be agreed between us."
Speaking on the campaign trail for EU elections, May hit back at Corbyn saying it's Labour's Brexit policy responsible for the collapse of cross-party talks, saying "there isn't a common position in Labour about whether they want to deliver Brexit or hold a second referendum, which could reverse it".
The two parties are now expected to discuss how to put a number of options to MPs to break the deadlock.
The failure of the talks were flagged by earlier by BBC Newsnight political editor Nicholas Watt who said Conservative whips had given up hope of finding agreement with the Labour leader on a Brexit deal.
Senior Labour MPs had meanwhile "called for an immediate halt to the talks" at a shadow cabinet meeting, according to the BBC.
Corbyn appears to simply not have the support of his party to pursue a deal.
Concerning the next step, the staging of parliamentary votes to find an alternative Brexit, parliament has in the past attempted to find a consensus on an alternative route to the Brexit deal, but failed.
Previously, unity was only ever achieved around calls to delay Brexit; therefore we are highly sceptical that an alternative Brexit arrangement will be agreed.
The Pound saw selling pressure increase following the news: the Pound-to-Euro exchange rate has fallen back down to 1.1430, having been as high as 1.1776 ten days ago.
The Pound-to-Dollar exchange rate is quoted at 1.2765 having been as high as 1.3177 ten days ago.
"With Labour quitting the cross-party talks we are visiting no-man's-land once again. Hence, downside risks to the pound are increasing further," says Marc-André Fongern at MAF Forex.
The British Pound is under pressure as markets continue to wake up to the fact that the UK is very likely to exit the EU without a deal on October 31, dashing a consensus amongst traders that a 'no deal' Brexit was a remote prospect.
Commenting on Sterling's run lower, Simon Harvey, FX Analyst with Monex Europe says, "the move is quite telling about how entangled the Pound is with political uncertainty, especially given the general depreciation of the Euro recently. Markets are currently pricing out the potential of cross-party talks bearing fruit and Brexit steering away from a softer Brexit."
Pound Sterling Live have warned for some weeks nowthat a new Conservative party leader would pursue a 'Brexit at all costs' strategy in the event of Prime Minister Theresa May leaving 10 Downing Street; and with news this week that May will indeed be gone within weeks, this view is becoming more relevant.
Talks between May and the Conservative's 1922 Committee - which oversee party procedure - saw her agree to leave the role if she loses the key Brexit vote scheduled for June.
With entrenched opposition amongst the 'Brexiteer' wing of the Conservative's parliamentary party, DUP and the opposition Labour Party, the prospect of the Brexit deal passing are remote and May's departure virtually guaranteed.
A Conservative leader conference will most probably be triggered in June where MPs will select two candidates that then face off in a contest decided by the party membership.
"May’s abdication would increase the chances of a Brexiteer such as Boris Johnson or Dominic Raab taking over the reins and potentially imposing a harder Brexit with the political declaration still left to play for," says Harvey.
We expect a 'softer Brexit' and 'harder Brexit' candidate to square off in the final contest as MPs will be keen to put forward a balanced field, but ultimately the 'harder Brexit' candidate should easily win the vote of the membership.
"UK political instability is contributing to GBP’s weakness," says Kim Mundy, a foreign exchange strategist with CBA, "if PM May’s WAB is not successful in June, this raises the risk of a hard‑line Brexiteer taking May’s place as Prime Minister which will likely further weigh on GBP."
According to Odds Checker, bookies place Boris Johnson as the favourite to succeed Prime Minister Theresa May, ahead of Dominic Raab and Michael Gove.
GBPUSD forming a classic "Boris cliff" pattern. Bearish for sterling, target 1.25 pic.twitter.com/2h8hYjTnGA— Ranko Berich (@rankoberich) May 17, 2019
"MPs I’ve spoken to reckon the shorter the timeframe, the better for Brexiteer candidates, which put Johnson and Raab in poll position. But Gove is the acceptable face of Brexit wing for manyMPs in the party and is a very serious contender too," says Beth Rigby, Political Editor at Sky News.
All three are so-called 'Brexiteers', and based on various public pronouncements over recent weeks we believe all would opt to pursue a WTO Brexit on October 31 rather than ask the EU for another delay.
"For markets this is ramping up the likeliness of a hard Brexit, as pushes for a more hardline Brexiteer to take over is raising fears that we could see the UK leave the EU without a deal in October," says Joshua Mahony, Senior Market Analyst at IG.
Johnson on Thursday said he will run for the Conservative Party leadership after Theresa May stands down.
Asked at a business event in Manchester if he would be a candidate, the former foreign secretary replied: "Of course I'm going to go for it."
The 'softer Brexit' candidates include Jeremy Hunt, Matthew Hancock and Rory Stewart. James Cleverly and Kit Malthouse are described as 'two rising star Tory MPs' to have most recently launched their bids: they fit into the 'softer Brexit' bracket.
May's ultimately departure "will drive a wedge between those who seek a hardline Brexit and everyone else, for moderates will know that a new conservative leader could lead the country out of the EU irrespective of whether a deal is in place," says Mahony.
In line with rising risks of a 'no deal' the Pound has struggled and is the worst-performing major currency of the week.
Above: Sterling's performance this week.
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