MUFG Research discusses the latest Brexit developments.
"The pound is unmoved ahead of the strong likelihood of the EU-27 tonight offering PM May and the UK another extension to Article 50, possibly until the end of this year with an option to leave earlier if PM May can reach a consensus in parliament on a way forward...
We understand why this is being met with limited enthusiasm in the FX markets. Firstly, no-deal risks were already marginal with the EU never realistically going to reject the UK’s request. Secondly, a potential longer extension opens up a Pandora’s Box of uncertainties that aren’t particularly attractive. PM May will in all likelihood give another push to get a deal over the line ahead of EU elections on 23rd May, or by 30th June (her original desired deadline date) so that the UK would not have to sit in the new EU parliament on 2nd July," MUFG notes.
But the potential of having a longer delay leaves her weaker. There is no ‘no-deal’ risk to give her push fresh urgency and hence failure to get a deal done opens up the probability of PM May stepping down, a leadership election in the summer and a possible general election with the Tories under a new hard Brexit PM," MUFG adds.