The Return of Article 50, and What it Means for Spread Bettors

While Brexit and the UK’s eventual departure from the EU will represent a significant transition, this will arguably not be as impactful as the ongoing uncertainty that surrounds it at present.

Ever since the British electorate voted to leave the EU during a referendum on June 23rd last year, the process has been debated, delayed and complicated by a series of protests and extended legal battles. The last of these was waged at the Supreme Court, where judges denied the Prime Minister’s so-called ‘royal prerogative’ to trigger Article 50 and instead compelled the House of Commons to debate the issue.

Britain is Now Sure to Trigger Article 50, but Will This Bring an End to the Uncertainty Surrounding the Nation’s Economy and Financial Markets?

These prolonged legal conflicts have only served to delay the official triggering of Article 50, however, while also reaffirming that the devolved government’s of Northern Ireland, Scotland and Wales have no power in determining the timing or the precise nature of Brexit. Now that the House of Commons has voted to support an exit from the EU with an overwhelming majority, Prime Minister Theresa May can press ahead with her plans to initiate the UK’s departure and become the first political leader to trigger Article 50.

In fact, the PM has privately stated her intention to trigger Article 50 on March 9th, meaning that the timetable has been slightly hastened to avoid further delays and voter protests. The question that remains, of course, is whether this will ultimately provide a boost to the economy and end the ongoing uncertainty, or simple create a new phase of volatility that continues to impact negatively on the financial marketplace?

Firstly, we must consider the fact that Brexit negotiations could take up to two years to complete, although May has asserted that she hopes to have a final deal in place by the autumn of 2018. The complexities of these negotiations could trigger a number of economic peaks and troughs, while the uncertainty of the potential outcome may also exacerbate the challenges pertinent to volatile, derivative-based markets.

While May has already persuaded Parliament to back her authority and trigger Article 50 according to her preferred time-frame, there may still be some dissenting voices and hardcore remain voters who demand concessions. So although it is now clear that single market access in a non-starter, there are other, smaller issues that may cause some debate among MPs. Even if a deal in agreed in principle, it must then be presented to Parliament and approved before being confirmed, as this allows further opportunity for remainers to vote against specific terms and raise amendments.

In short, the recent Parliament vote merely represents a small (if resounding) win for the Prime Minister, while there are a number of additional hurdles that must be cleared before Brexit becomes a reality and the UK officially ends it EU membership. Make no mistake; this is a long and arduous path that is fraught with danger and complexity, meaning that the uncertainty and volatility that surrounds the concept of Brexit is likely to continue until all parties consent to signing a final agreements.

So What Does This Mean for the Markets and Spread Bettors in Particular?

The uncertainty created by Brexit has already manifested itself over the course of the last year, with the value of the pound a key measure for economic mood and investor sentiment. While we have seen peaks and troughs during the eight months that have followed the referendum vote (usually in line with key statements and major news releases such as the courts initial decision to force a Parliamentary vote), the pound largely remains burdened with doubt and mired in a modest trading range.

The current state of affairs has been summarised by Neil Wilson, who works as a senior market analyst for ETX Capital. “Sterling fell and then recovered some of the losses following the Supreme Court’s ruling as the judges’ decision casts a pall of uncertainty over the triggering of Article 50,” he claimed. “The moves need to be seen in the broader context of sterling’s plunge since June, however. These are pretty minor adjustments and the pound is stuck in a range it’s traded in since the start of October of between roughly $1.20 and $1.27”.

This current scenario has clearly created some form of Groundhog day for the pound, with sudden, seismic declines followed by periods of sustained but limited recovery. We saw this currency plunge to a 31-year low twice last year, for example, after the initial referendum vote and then following May’s announcement that the UK would pursue a hard Brexit and exit from the single market. The currency then showcased resilience to rebound and consolidate for a period of time, without ever truly regaining its strength and competing with the U.S. Dollar (USD) and to a lesser extent the Euro (EUR).

This sends a clear warning sign to forex spread bettors, many of whom have continued to back against the pound and invest in currency pairs such as the USD:GBP. This will have delivered exceptional results in recent weeks, with the U.S. continuing to deliver strong economic performance and impressive data releases. While this may change should Trump’s proposed infrastructure spending force the Fed to hike interest rates during their next policy meeting in March, for now the USD remains a safe haven for spread bettors who are keen to escape the restricted betting range of the pound and the constantly struggling EUR.

 

Another key area of concern is the marginalisation of the devolved nations such as Scotland, which have been largely overlooked during the entire Brexit process. While SNP leader Nicola Sturgeon may have dismissed the chances of an independence referendum in Scotland this year, there is no doubt that the treatment of the devolved nations and the recent Supreme Court ruling may be used as leverage to rouse patriotic feeling and trigger a vote sometime in 2018.

This would be highly detrimental to the pound, while creating further uncertainty that will have a significant impact on spread bettors.

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