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This Tuesday's vote is going to be of prime importance for Theresa May and her trade deal, as the PM is rapidly running out of options and time to push through a viable compromised proposal. But what are the stakes at present? Last time the PM tried to postpone the vote in order to gain more publicity and support for her deal, yet this was to no avail as ultimately her proposal was defeated with an astonishing 230 majority vote, in what turned out to be the biggest defeat in British democratic history.
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Initially, the market was rattled by the magnitude of her defeat, despite the expectations for a whopping failure, but afterwards, the GBPUSD currency pair started to regain its strength. It was at this point that the Torry party started to crumble from within itself, as more and more conservatives started to openly distance themselves from May's proposal, which was never fully upgraded by May despite multiple rejections.
This time, the PM approached the second vote in Parliament from a more rhetorical perspective, warning that another rejection of her trade deal proposal is going to result in an indefinite prolonging of the Brexit negotiation period with a potential of no Brexit at all. Investors perceived May's remarks as a last-ditch effort at gaining some political leverage over the dismissive members of her own party and the rest of the opposition, as well as a futile attempt of scare tactics.
Failing to accommodate the transition process of leaving the EU block is going to be the ultimate miscarriage of her cabinet, which is a major point of concern for investors. They fear that the results from Tuesday's vote would delineate to a significant extent the prospect for a no-deal divorce, which at present is the biggest threat for the future of the British economy. The vote on Tuesday is going to resemble the January vote in that the ultimate decision won't be the focal point, as the forecasts showcase another an imminent defeat for May, however, the most intriguing aspect of the vote would once again be the magnitude of the final vote tally.
If May's proposal gets defeated with a margin of close to 230 – majority defeat, similar to last time, then this would mean that the hung Parliament’s resolve to support a good trade deal over a bad one is solidified, and May's threats of no-Brexit eventuality hold no sway over the cabinet. However, if we see a less-decisive defeat of May's deal plan, that will be perceived as showcasing doubt amongst members of Parliament and the rising fear of the prospects of leaving the European bloc without a trade deal.
In the first case scenario, the most likely consequence for the GBP, after the initial volatile reactionary shockwave, would be to find support and parallel the upside movement in the cable like the one after the last parliamentary vote in January. In the second case scenario, it would mean that some MP’s have taken to heart May's pressures against a no-Brexit scenario, which would mean that a no-deal eventuality is more likely now than it was in January, in which case the GBP is likely to continue its losing streak from last week.
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