May-hem - Sterling Collapses

Politics is a risky business and Theresa May's poll gamble has failed. I got some flack yesterday for reporting the odds offered on a May victory by Ladbrokes bookies because early polls—before the two terrorist attacks and her blunders over debates and taxation of senior citizens—had put May 20% ahead of lefty Labour leader Jeremy Corbyn. But of course the moves by the betting public in Britain are a good way to predict how people will vote.

I expect the Tories will bring out their long knives. The ousted former PM David Cameron was made the scapegoat for an unnecessary poll over Brexit; how much more venom will be generated by the party which had a solid majority before May opted to go to the country well before it was necessary under the rules.
May may have to walk the plank, in which case a coalition government including some with Bremain elements like the Northern Irish Democratic Union Party, which wants to keep links with Ireland, the Liberal Democrats, the Greens, and the solo independent, and the solo Independent will hold the key to power. They can swing either way, to Labour or the Conservatives. But whichever way they move, May may not survive as the exemplar of a “hard” Brexit.

As I write she is meeting with the Queen to discuss creating a minority government with support from the DUP, which is potentially a blow to the whole Brexit project. A border running between Ireland and Northern Ireland is a blow to both economies and peace between them.

The Frankfurter Allgemeine Zeitung tried to figure out what the UK polls mean for Brexit. It quoted Michael Hewson of CMC Markets in London: “The Scottish Nationalists and Liberal Democrats want to stay in the European Union. So there is a possibility that Brexit may never happen at all!”

As for sterling, Stephen Gallo at Bank of Montreal told the Financial Times that Brexit is "factor number one" for determining the pound's near-term direction. A minority Conservative government implies a "softer Brexit", he adds, a scenario that points to a firmer pound. Today in Asia trading, however, the pound was pounded, because markets hate uncertainty.

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