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Could a Second Referendum Fuel the Price of GBP?

February 11, 2019
BY Emma Richards

The European Commission president has made it very clear that the EU is not willing or able to modify the UK’s existing exit deal, leaving the British prime minister stuck between a rock and a hard Brexit. This is now fueling speculation about the possibility of a second referendum.

“The Withdrawal Agreement will not be renegotiated.”

Jean-Claude Juncker

Furthermore, it seems highly unlikely that the House of Commons would consider reversing their record-breaking Brexit vote of 432 over 202, which constituted an overwhelming rejection of May’s deal.

At this point, there seems to be no viable solution to the impasse, which raises the question, is Brexit still good for the United Kingdom? Was it ever? Trading GBP might be a good option to hedge or profit from Brexit sentiment, but what about the long-term future of sterling?

Opposition towards Brexit on the rise

Crowds gather in front of the UK’s Parliament building to protest over Brexit every day, and attendance is rising. Meanwhile, inside parliament, leader of the Labour Party Jeremy Corbyn and a total of 71 Labour MPs have already declared their support for a second referendum. Leaders of the Scottish National Party (SNP), Plaid Cymru of Wales, the Liberal Democrats, and even the Green party are all calling for a second referendum, now aptly named the “People’s Vote”.

2nd referendum being called for by the public

The British public is seeing what Brexit really means and a second referendum is no longer an impossibility.

Former chief of the World Trade Organization Pascal Lamy was quoted as saying that a second referendum “is now an option”. More recently, in a letter published by The Times, 130 industry leaders urged the political leadership to support a “People’s Vote”. Despite this rally of second referendum support, Theresa May seems unwavering as she struggles to forge ahead with her EU break off plan.

“Let us not break faith with the British people by trying to stage another referendum.”

Theresa May

But do the UK citizens really want Brexit?

In 2016, May announced her plan to leave the EU. In an almost Trump-style campaign, the British people were exposed to the suggestion that Europe’s jobless were flooding into the UK, burdening the economy, and taking jobs from Brits. On June 23, the referendum was held, and the word “Brexit” began to circulate in the financial and political worlds. The British public had spoken. Or had they?

There are currently 66 million people living in the UK; 53 million of them are old enough to vote, but only 28 million people actually participated in the Brexit referendum. Furthermore, it wasn’t exactly a landslide vote, with 53.4% supporting the exit vs 46.6% favoring a continued EU membership.

In other words, only around one in every four people living in the UK actually voted to leave the European Union. Moreover, it is very possible that those who favored Brexit at that time didn’t really realise the consequences of the UK leaving the EU, but they probably do now. Would they make the same choice if given the chance to vote again?

May’s reluctance to hold a second referendum continues to baffle many in the British parliament, the EU Council, and the world media. The mere idea of Brexit has already greatly damaged GBP, with financial leaders — both governmental and entrepreneurial —  fervently warning of an economic collapse if a deal is not successfully negotiated and approved by parliament. With the countdown to the UK’s exit on 29 March well underway, the pressure is mounting.

What would a second referendum mean for the UK economy?

A delay or abandonment of Brexit could restore GBP’s standing in the world’s currency markets, which would likely prompt new investment in the UK economy. GBP traders could quickly see a rise in the price of the British pound sterling as market sentiment becomes more positive.

During the highs of 2007, GBP was worth 2.07 USD, until the global financial crisis provoked a crash. When the dust had finally settled, GBP had fallen into the $1.50 – $1.60 range. Then prices went from bad to worse. After the Brexit announcement, GBP dropped to a record low of $1.22, and it hasn’t really recovered since then. Returning to a $2+ price is highly unlikely, but a bounce back to the 2016 range is not inconceivable and could happen quickly.

What do currency traders think about Brexit?

Currency traders have the option to either buy or sell GBP. If Brexit fears continue and the pound falls further, a SELL order would generate profit. If a 2nd referendum is announced and GBP rises, a Buy order would be the favorable option. Having the choice means traders can benefit from GBP, no matter what happens.

Those in the financial world are keeping a close eye on Brexit developments. If the support for a second referendum continues to grow, there might still be hope for GBP.

Start trading GBP today and take advantage of Brexit volatility.

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