When we look back at the events of the last few months and how the next steps in the long running Brexit saga play out, could this morning’s events prove to be a seminal moment, or fork in the road as to where we end up next?
This morning’s opinion by the European Court of Justice’s Advocate General that the UK could unilaterally revoke its article 50 notification has seen the pound rally strongly from the 1.2700 level which had been its lowest level since early August.
While it is important to state that the opinion of the advocate general isn’t binding and is only an opinion, it does have the capacity to change the calculus about how the politics in the UK could well play out in the days and weeks ahead.
An important caveat to this opinion is that the European Court of Justice hasn’t ruled that this is the case, but there is a school of thought that any final ruling is unlikely to be significantly different to the initial opinion, and as such, in trading parlance, it offers the UK an effective stop loss position, and could well remove the option of a “no deal” Brexit from the table.
It also opens up a can of worms for other EU nations in that it could effectively open up the prospect of Article 50 being used as a negotiating tool for frivolous triggering by member countries in order to extract concessions from Brussels to obtain better terms of membership to the detriment of the broader European project. The article could then be revoked once any new terms have been agreed.
With opposition to Prime Minister May’s Brexit deal still running high it could also change the calculus around those who are currently lining up to oppose the agreement in that if the ruling is confirmed, and it is an if at this point, the ruling would effectively remove the prospect of a “no deal” option from the table. MPs have consistently pushed back against the prospect of a “no deal” and this opinion, if confirmed, could well offer parliament a way out in terms of a new referendum or a vote to retain the status quo, if the withdrawal agreement doesn’t pass.
Against this backdrop the options would appear to be two fold, effectively vote for the Prime Minister’s deal or run the risk of no Brexit at all, as MPs would find themselves with an option, which they had previously ruled out, of reversing the referendum result, in preference to a no deal scenario.
It would appear that markets have also come to this conclusion as well with the sharp rally in the pound sending it above $1.2800 against the dollar, as markets start to price out the prospect of a “no deal” option in the wake of this morning’s judicial opinion. It is still too early to draw any concrete conclusions from this morning’s events but as with all things to do with Brexit it does muddy the waters further. We have strong resistance at 1.2850, and we would need to see a move through this level to argue a return to the 1.2930 area.
The next few days are likely to be interesting to see if European Court judges support the opinion of its one of its senior legal counsels, or whether they add some caveats, but if they do it will reinforce the hands of those who want the UK parliament to overturn the referendum result and stay in the EU.
While that may well be positive for the pound in the short term, it could well be even more poisonous for politics in the UK, with the prospect of another referendum or a general election and the prospect of a Corbyn led Labour government, but that’s a story for another day.