Another turn on the Brexit issue? (Afternoon analysis 4.09.2019)

Before the vote on the postponement of Brexit, labourists are likely to change their minds on the early elections. The zloty gives away some of the increases from the morning, but the EUR/PLN exchange rate still remains below the 4.35 boundary.

Aren't labourists interested in early elections?

Another interesting evening and night in British politics are ahead of us. Parliament will probably be able to pass a law delaying Britain's exit from the EU until January 31st, 2020. What happens next remains unknown, especially as the labourists are beginning to change their minds about support for early elections.

Laura Kuenssberg, the political editor of the BBC, said that Labour Party members would not vote for early elections until the law delaying Brexit had been voted through and adopted. Only the first condition was mentioned earlier. Therefore, it follows that elections would not take place in mid-October, as the law will be in force from the second half of next month.

Some of the labourists, as mentioned earlier, may be against early elections, fearing the loss of seats in districts where they won by left-wing voters, who are also in favour of a definitive Brexit and not of the compromise offered by Jeremy Corbyn's party.

It seems that this attitude may prolong the agony of this House of Commons. Instead of a parliament dissolving itself, for which two-thirds of the votes are needed, we may have a series of votes in favour of a vote of confidence in the current government and a hypothetical opposition government. The problem is that none of them really needs to have a sufficient majority to exercise power. The pushed back conservatives can, for example, vote against both the current government and the one that would be formed by the opposition.

Such a process, although it extended the period of the UK's stay in the EU, could eventually lead to greater radicalisation of conservatives about the upcoming Brexit deadline, assuming that it would be January 31st, 2020. Their victory, which is now the baseline scenario, with a fresh mandate from society, would allow full confrontation with Brussels. Then, any agreement would be more difficult to reach, and the risk of hard Brexit could become a baseline scenario. The consequence would be additional pressure on the pound and an increase in risk aversion even at the global level.

Lagarde and the zloty

Christine Lagarde, former head of the IMF, has today taken part in a series of questions from European parliamentarians. That is a part of the process of her appointment as President of the ECB. The hearing itself was not particularly exciting. Interestingly enough, Lagarde sees the need to set a specific inflation target (currently close to but below 2%), which is not likely to change the ECB's approach to monetary policy. Lagarde also spoke about the fact that inflation is still too low and an accommodative monetary policy is necessary. She also pointed out that public concerns about the tools used by the ECB (e.g. negative interest rates) must be taken into account. During her speech, the euro maintained its earlier increases against the dollar, and in the late afternoon, it is still above the 1.10 boundary.

The Polish zloty returned some of the morning's profits, but the EUR/PLN exchange rate remained below 4.35. The Polish currency should not be particularly unstable in the following hours. Investors will wait for the next signals (Brexit, labour market data, next week's meeting of the ECB) rather than anticipate the planned events. Therefore, stabilisation remains the baseline scenario.