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Strategy of British opposition (Afternoon analysis 25.09.2018)

25 Sept 2018 15:57|Marcin Lipka

Labourists' statements suggest more and more problems for the pound and for the process of leaving the European Union by the UK. The zloty remains stable. The euro fluctuates between 4.29 to 4.30 PLN.

The UK opposition's stance in the context of last week's EU summit in Salzburg is slowly becoming clearer. Statements by key politicians at the annual Labour Convention suggest that the failure of Prime Minister May in Austria will first and foremost be used to try to provoke early elections.

Labourists plan to achieve this by rejecting the Brexit plan that the ruling Conservatives are going to present. This rejection will be very easy to explain, as the agreement is likely to be less favourable than the one presented by May in Salzburg, and the Conservatives, in turn, will not agree to fully remain within the common market (as proposed by the EU), as this would disrupt the entire Brexit project.

Next steps of the labourists are as follows. They were briefly presented by Keir Starmer, a spokesman for the party, who was quoted by Bloomberg. If the Brexit project is rejected, the government's failure will be an argument for early elections. If they fail, the labour party will want to organise another referendum on Brexit, in which Starmer would vote in favour of staying in the EU (a statement for the BBC). What does all this mean for the pound?

The fact that the labourists felt the chance to change the political deal after the failure of May in Salzburg increases the risks for the British currency. Practically every scenario that emerges from recent events is negative for the pound because, whatever the intentions, it creates additional risks.

These would be the next elections (which do not have to change anything), the risk of a hard Brexit (the failure of May in Salzburg), or the growing likelihood of a disorganised exit from the EU, which would very clearly weaken the pound and seriously damage the British economy. As a result, it seems that the coming weeks will be difficult for the sterling and it is hard to find a positive sequence of events that would allow the UK to quickly emerge from the internal and external deadlock.

Compared to the problems on the pound, the changes on the zloty should not be significant. The Polish currency is stable and will probably remain close to current levels even if the statement from the Federal Reserve during tomorrow's meeting of the Fed will be relatively hawkish.

25 Sept 2018 15:57|Marcin Lipka

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

25 Sept 2018 13:15

Signals from ECB (Daily analysis 25.09.2018)

24 Sept 2018 16:00

Market reacts in unjustified way (Afternoon analysis 24.09.2018)

24 Sept 2018 13:28

Waiting for Fed (Daily analysis 24.09.2018)

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