Pound under significant pressure (Daily analysis 15.11.2018)

Events in the UK attract the whole market attention. The resignation of the Minister for Brexit has also clearly weakened the pound in relation to the zloty. The overall situation of the Polish currency remains quite stable. The euro is close to 4.30 PLN.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

• A lack of macro data may noticeably impact the analyzed currency pairs.

Great Britain in limelight

The issue of adopted by the British Government's Brexit plan could result in a serious pound depreciation in the coming weeks. It is because too many parties' representatives will not like this agreement.

Labourists will practically reject Theresa May's plan. The prepared emergency mechanism assuming that Britain will remain in the customs union is also likely to be rejected by the Scottish Nationalist Party (SNP), the coalition partner of the Tory, the Democratic Unionist Party (DUP), Eurosceptic Tory members and moderate conservatives opposed to the Brexit. Given the marginal majority of Prime Minister May in the House of Commons, the Parliament is very likely to reject the plan in the second half of December, which will result in the breakdown of the pound.

However, the scenario of serious pressure on the pound has been postponed until today's session, as Dominic Raab, the Minister for Brexit, has resigned from his office. Raab, who was a key member of the administration, stated in his resignation that "the proposed regulatory regime for Northern Ireland poses a very serious threat to the integrity of the United Kingdom". He said that "the indefinite emergency mechanism in which the Union can veto the exit" was unacceptable.

Similar doubts are likely to be expressed by a large part of the Eurosceptic Tory and the members of the DUP if the plan is voted on in parliament in the second half of December. On the other hand, the SNP claims that Scotland was omitted from the agreement and its position has deteriorated as a result of concessions to Northern Ireland. However, there is a growing probability that no vote will be taken, as the May Cabinet will not last until the end of the year.

At this point, it is possible that Dominic Raab will be the new Prime Minister. This, of course, postpones any vote on the plan, which the hypothetical Prime Minister opposes. This would strengthen the role of the Eurosceptics, who are unlikely to reach a new agreement by the end of the year, which increases the risk of a disorderly exit from the EU and is negative for the pound.

It is also possible that the Tories, due to the inability to maintain party cohesion and the high risk of rejection of the Brexit plan in the House of Commons, will decide to hold new elections. Of course, the problems accumulate even more, and the whole Brexit plan ends up in the bin before the new government and negotiating team are elected. It is hardly surprising that the pound loses about 1.5% in relation to the dollar and about 0.07 PLN to the zloty, falling to about 4.86 PLN.

In all the confusion, there is a room for a positive solution, namely another referendum. Although the chance of such a solution is increasing, it is unlikely that the current Parliament will decide on it. The outcome of such a poll is, of course, not a foregone conclusion. As a result, a series of negative events may be hanging over the pound, which will push its valuation to ever lower levels in relation to the dollar, the euro and the zloty.

Stable zloty

Events related to the pound had a slight impact on the zloty. The euro is still quoted close to 4.30 PLN, and the dollar costs about 3.80 PLN. Of course, the strong discount affected the pound (from 4.93 to 4.86 PLN), but it results only from the events in the Islands, and not from changes in the zloty exchange rate.

Stabilisation remains the baseline scenario for the zloty. On the global market, the euro is still not ready for a stronger rebound (slow growth in the eurozone, problems of Italy, Brexit), but some factors are starting to have a positive impact on the common currency (cheaper oil, decreasing risk of the expansion of the trade war). In this environment, the zloty should also be relatively stable.