Pound Tumbles Amid Brexit Chaos, "Headline Havoc"

Tyler Durden's picture

Cable traders are suffering through a news overload this morning, with the optimism and euphoria which sent the pound to two month highs as recently as 2 days ago fading fast on speculation whether UK PM Theresa May will be able to engineer a Brexit breakthrough in time. And following overnight speculation that her cabinet may revolt, and what one desk dubbed "headline havoc" this morning in which DUP sources saying that there will be no deal this week, it’s looking increasingly in jeopardy. 

Overnight the Telegraph and Bloomberg reported that Theresa May is facing a revolt from inside her Cabinet over her plan to keep U.K. regulations aligned with the European Union after Brexit, "a split that threatens to undermine her chances of breaking the deadlock in negotiations." Foreign Secretary Boris Johnson and Environment Secretary Michael Gove "will lead a Cabinet revolt against Theresa May over fears she is forcing a soft Brexit" the Telegraph reported. While this is hardly the first time we’ve heard this sort of speculation, considering the closeness to the EU Council Summit next Thursday/Friday, the clock is ticking for May to come up with a solution.

That may be tricky because with just days to go until a deadline to get talks back on track and the pound sliding for a second day, May is struggling to get the Northern Irish party that props up her government to sign up to her Brexit strategy. Wednesday had been tipped as the day May could head back to Brussels to resume talks that suffered an embarrassing breakdown on Monday. Explaining the tension, DB’s Oliver Harvey believes the question of a December breakthrough is now in doubt after the DUP rejected the proposed compromise over Northern Ireland’s status after Brexit, and so scuppering talks. He notes that the failure of the UK to reach agreement is problematic for four reasons. 1) the DUP appears to have drawn a red line over continued regulatory alignment between Northern Ireland the Republic. 2) proposed regulatory alignment between Northern Ireland and the Republic has emboldened leaders of other devolved administrators, most notably in Scotland. 3) the rejection of the deal has emboldened some hard Brexiteers within the Conservative Party, and 4) time is now tight.

In short, the UK must reach a final agreement by the end of this week to have a chance of reaching sufficient progress at next week’s Council.

Meanwhile, EU officials have repeatedly said that an agreement needs to come in this week to be able to discuss at the Summit in time. May could return to Brussels as early as Wednesday to continue talks, a Downing Street official said. However the DUP might prevent that:

And then there was the "headline havoc" with Reuters first stating that:

DUP SAYS "NO PLANS TODAY" FOR PHONE CALL BETWEEN LEADER ARLENE FOSTER AND UK PM THERESA MAY

Followed by this from Bloomberg:

DUP SAID TO DEMAND SIGNIFICANT CHANGES TO TEXT ON BORDER

Separately, Bloomberg adds that the Irish government views the chances of a deal this month as falling, and adds that the collapse presented May with three unappealing options:

  • change her Brexit policy,
  • risk a constitutional crisis in the U.K., or
  • face the prospect of a no-deal split from the EU.

For a context of timing, the EU and UK are both aiming to get close enough to an agreement this week so that a summit of leaders on Dec. 14 can give the green light for talks to move on to the future relationship early next year. Almost 18 months on from the referendum, the UK Cabinet has yet to set out the future relationship it wants with the EU. Eight months since May triggered the divorce proceedings, negotiations have barely made progress. In March 2019, Britain will leave the bloc, with or without a deal and the longer talks drag on, the greater the chance of a messy exit.

As a result, cable has tumbled to session lows, nearly 200 pips from Monday's optimistic highs and last trading at 1.3370 as traders struggle to figure out what happens next amid the growing chaos.

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ludwigvmises's picture

Only those traders who are LONG are suffering. Those short are counting their coins.

Shropshire Lad's picture

The pound had risen to an artificially high level based on expectations of a disastrous "deal" based on a £50 million+ bribe being paid to Brussels.  Now the exchange rate is dropping back to nearer the equilibrium range of the last 15 months or so which has enabled a strong revival in UK manufacturing.  Good news all round.

Global Hunter's picture

Excuse my ignorance why do they even need "a deal" to leave?  What would the Euro pussies do if the UK just said "we're out" and leave just like that.  The UK leaders need to show some balls and say "our people voted to leave and that is that, YOU need to deal with it not us".

(I know the UK establishment doesn't really want to leave which is probably the answer to my question).

ludwigvmises's picture

If they "just leave", Brits will take it to the streets. Polls show the majority of people want a deal. " 52 percent agreed that leaving without a deal would be a “disaster” for the U.K. economy, against just 34 percent who said the U.K. should leave the EU without a new settlement if a “good deal” is not on the table."

css1971's picture

Lol. No.

Some snowflakes still at university might take to the streets. The majority will just roll their eyes and get on with life.

bombdog's picture

But let's be fair, nobody on the street knows their arse from their elbow on this matter. If the government had balls and credibility on this people would likely fall behind the government, even if reluctantly. Trumps tweets are more important to this administration and they a more apt to be lead by the media rather than by the basic principle of protecting sovereignty and public money. There are vast bureaucracies and complexities, groups with vested interests. There is a terrible inertia of a bloated state apparatus, which ironically is used as an argument to stay in the EU. Rather than real proper men with balls defending our national interests we have all these pussies talking the country down. Anyway, you know better than me Mr Mises.

chubbar's picture

You know what'll keep the folks in the UK from bitching if May leaves without an agreement? Splitting that 50 Billion the EU wants among the people of UK. Give it back in cash.

Shropshire Lad's picture

Most of the adult respondents in such polls are ignorant of the WTO rules which would automatically come into play -- of 3% tariffs.  So the deluge of German and French manufactures would become slightly more expensive on the UK market and significantly more expensive after a sharp drop in Cable courtesy of the Forex traders.  Good news for UK manufacturers and a big setback for the EU firms. 

duckrichard's picture

If some part of the UK establishment didn't want this it wouldn't have happen.

art.50 of the EU consitution state that after the decision of leaving is formulated the two party have 2 years to reach an agreement if by that time no agreement have been reached than the UK is out of the EU plain and simple.

Because of economic ties it's best for both party to reach an agreement however since the EU is a net exporter to UK the EU has the most to lose .

EU is an ideology so pragmatism is going to be hard to reach.  EU desperatly need the fund from the UK to keep running and his asking for those fund for the next five years which amount to something like 10-12 Billions € / years (net cost for the UK) . OFC the UK doesn't want to pay for something it is not part of . That money will have to come from somewhere and it is the net payer that are going to have to fill in mainly France, Germany and Netherland.

Futhermore the EU want to show that very bad thing happen to you when you're not in the EU despite everything showing the countrary. All the nation in Europe that are not part of the Eurozone are doing better than those that are part of it and all the country in Europe that are not in the EU are doing better than those that are part of it .

So there you have it .... The ploutacrat running the EU will probably prefer to reach no argument by pure ideology to prove their point if they can not reach a creepling and humiliating one from the UK side

avenriv's picture
duckrichard   said "All the nation in Europe that are not part of the Eurozone are doing better than those that are part of it and all the country in Europe that are not in the EU are doing better than those that are part of it" I supposed you wanted to say "nations". UK was not in Eurozone, so this doesn't matter. do not mix Eurozone with EU. do you want to say romania, bulgaria, hungary, poland, czechs, slovaks are doing better than germany, france, the netherlands, the baltics ? without the money coming from EU these contries would be in difficult times. sweden, denmark are doing good. but do not try to misled, the BREXIT's issue was not the euro, was the EU. EU is not EUROZONE.
chubbar's picture

The other question is when the fuck is it going to dawn on May that Juncker has no fucking plans to ever allow a deal for BREXIT to happen? The EU isn't negotiating in good faith because they don't want BREXIT to happen and they think that if they can delay it long enough, something will happen to change the UK from leaving. It couldn't really be any clearer to those watching this debacle.

Just fucking leave, you're a sovereign nation.

silverer's picture

You raised a good point. I was thinking the same thing. First question is does the original document specify anything about a monetary settlement if a member country chooses to leave?

Shropshire Lad's picture

No mention is made about a monetary settlement.

buzzsaw99's picture

that's it.  i don't care what happens in or to the uk or europe anymore.  not at all, i refuse to read one more word of news from that entire area.  they are all dead to me.

css1971's picture

You starting to understand why warfare has always been popular in Europe.

UpAndDown's picture

I love this guy!!!

0,5% down = Tumbles!

maybe 1,5%  => End of the World!!!!

JailBank's picture

Just walk away anf give the EU nothing.

julian_n's picture

Funny thing is, the GBP is at one year highs against the EUR and CHF (1.17 and 1.32).

Maybe this is a USD thing, not a GBP thing?

What has put the USD up so much?  Answers on a post card . . .

Winston Churchill's picture

Guaranteed everytime I get my royaly cheque(in pounds), the fucker drops.

I should have hedged.

yogibear's picture

The EU Bureaucrats can go to hell. Their just high paid leeches. 

silverer's picture

This is kind of like the scenery background falling down during a kid's stage play.

CRM114's picture

Hey, I used to do the scenery in kids' plays; none of my scenery fell down...and I could run the UK Government a darn sight better than the current incumbents.

You could.

The kids could.

;)

CRM114's picture

Philip Hammond has confirmed to the Treasury select committee that the Cabinet still hasn’t discussed what the Brexit end state will look like, i.e. whether it will be the convergence non-Brexit preferred by him, Jeremy Heywood and Olly Robbins, or a real Brexit in which we properly diverge from the EU. 

 

If you aim at nothing, you will hit it.

Thoresen's picture

Brexit cannot work unless Ireland leaves the EU at the same time.
May would be better to admit that, and put Brexit on hold pending a new referendum across the U.K. and Ireland. (OK I know that's absurd, but not as absurd as what's going on now!)

Shropshire Lad's picture

Brexit can work very well if the EU agrees to maintaining  free trade in goods and services, while the UK (unfettered) finds new markets worldwide.  Both parts of Ireland would then have identical terms of trade -- end of Irish problem. 

Thoresen's picture

I've said as much in other posts. No border controls. Tariffs have to stay the same to prevent smuggling. So UK leaves, but in name only. So no Brexit in reality.