UK: GBP’s reaction function to the Supreme Court’s Article 50 ruling - ING

According to Viraj Patel, Foreign Exchange Strategist at ING, the focus for GBP markets this week turns to the Supreme Court ruling on Article 50 – due to be announced today at 0930 GMT (1030 CET).

Key Quotes

“Given GBP’s notable rally since PM May’s ‘Clean Brexit’ speech last week (+3.0% vs USD and +2.0% vs EUR), we suspect that a ruling in favour of allowing Parliament to vote on the triggering of Article 50 is already in the price. It’s what follows – in terms of the government’s legislative actions – that will matter for GBP’s overall reaction.”

“As such, the details (exact wording) of the Supreme Court’s judgement matters:

• Scenario 1: Any ruling that doesn’t enable Parliament to have a say on the UK’s actual Brexit strategy during UK-EU negotiations will only lead to increased political uncertainty and probably renewed fears of a 'hard' Brexit. This will be unambiguously GBP negative and in this scenario our preferred strategy would be to fade any knee-jerk GBP move higher following tomorrow’s announcement. We would look for GBP/USD to move down to 1.2100 and EUR/GBP to move up to 0.8850 over the coming weeks. 
• Scenario 2: In the very unlikely event that the Supreme Court rules that Parliament must have greater scrutiny on the actual Brexit process over the next two years(after the triggering of Article 50), then we would view this as being modestly GBP positive. Although there is no real precedence for this, UK media are reporting that the Supreme Court could restrict the “prerogative powers” of the Government – thereby ensuring that Parliament either has a one-off vote or regular votes on Brexit-related decisions made by PM May. This would steer the probability of outcomes towards a softer Brexit (given opposition party reservations over exiting the single market). In the case of regular votes throughout the Brexit negotiations (as proposed by former Chancellor Ken Clarke), this would give Parliament the strongest say on the final Brexit outcome and we could see EUR/GBP move initially down to 0.8470 (GBP/USD squeeze higher to 1.2650).”