Due to the chaos in the UK Parliament in early September and growing ‘no-deal’ Brexit worries, the British pound hit the weakest level in three years. Later on, it had been fluctuated due to the laws enacted by the parliament in order to prevent ‘no-deal’ Brexit and the Brexit pressure applied by Boris Johnson and we observe the sharpest upward movements in mid-October in British pound.
In October, British Prime Minister Boris Johnson agreed to a new Brexit deal with the EU but failed to get the parliament’s approval. Despite concerns about a ‘no-deal’ Brexit, which increased again as we were getting closer to October 31, the due date for Brexit at that time, Johnson gave himself additional time by sending an unsigned letter to the EU in order to delay Brexit date. In the process, even though Johnson had requested early elections to carry out Brexit, he was rejected by the opposition many times in that period.
In late October, the EU agreed to postpone Brexit, and the concerns about a ‘no-deal’ Brexit in the pound were delayed for a while. In addition, the UK Parliament decided to hold early elections. The early election meant a new opportunity for the ruling Conservative Party, which failed to secure a sufficient majority in Parliament to carry out Brexit. The news led to positive movements in the pound.
Why does the pound move in line with the support for Johnson?
The polls are conducted by independent agencies for the upcoming 12 December election and each time a poll shows the support for Conservative Party increased, the British pound also increased in line with this support. But why?
Apart from the recent positive macroeconomic data, the main reason of upward movements in the pound is the parties’ attitude towards Brexit. The Conservative Party is trying to conclude the unresolved mass of ‘no-deal’ Brexit. In addition, Johnson, who had been a supporter of a strict Brexit in his early years, has recently taken a moderate stance and wants to separate his country from the EU with a deal.
When we look at the parties on the opposition wing, we know that they are far away from the Brexit process and even some of them don’t want Brexit to be concluded. A new referendum is likely to be held if Labour, the Conservatives’ closest rival, wins the election. People who want to leave the EU can vote in favor of Brexit again in such a referendum, thus, leading to star over at the very beginning. In such a case, it will be highly possible to see a strong depreciation in the pound.
To sum up, polls indicating the Conservative Party will get the majority for the upcoming December 12 election could lead to upward movements in the pound. However, even if Boris Johnson wins the December 12 election, the main issue will be whether his party will win the majority in Parliament.