Fundamental Forecast for GBP: Bearish
- The Brexit Aftermath Analysis Directory
- World Leaders Sound Off on Brexit as Markets Digest Volatility
The world received a lightning bolt of a shock last night as it was announced that British voters have decided to leave the European Union, and the near-term impact thus far has been profound. Global markets put in aggressive risk-off moves as Gold prices drove higher in the midst of the deepest decline in the British Pound in over 30 years. But just because we’ve seen the final vote counted and the Brexit referendum is over, it doesn’t mean that investors can begin to get comfortable yet; this is where the proverbial rubber begins to meet the road.
The process of disintegration between the U.K. and the European Union can take up to two years as specified by Article 50 of the Lisbon Treaty. And even then, that two year window can be delayed if agreed upon by both parties, so we’re likely very far from seeing what a final resolution might look like. This slow-grinding process can produce considerable volatility across markets as the world receives more clarity on what a post-EU U.K. just might look like.
Next Legal Steps
The next legal step in this process is to formally trigger Article 50 of the Lisbon Treaty in order to begin negotiations with EU leadership on the topic of disintegration. Prime Minister David Cameron announced his resignation this morning, saying ‘fresh leadership’ was going to be needed to guide the U.K. in this new direction, with the expectation of leaving office by October of this year. Prime Minister Cameron also said that negotiations with the EU will not begin until new leadership takes over, so there is a large amount of uncertainty here because we don’t even know who might be running the U.K. as these discussions begin, much less ‘when’ this process might start.
There is an EU Summit on Tuesday and Wednesday of next week, and this is where we’ll likely see European leadership beginning to plan their response to Brexit. It’s widely expected that many EU leaders will spend much of the weekend scrambling ahead of this upcoming summit to address a number of issues, including the rising sentiment of nationalism being seen in many other European countries now looking to host their own in/out referendums. The remaining 27 nations within the EU will draw up a list of issues that each consider to be non-negotiable, or ‘red lines’ that need to be taken into account in this new relationship between Europe and the U.K.
