And the winner is…??? The most important elections usually have to do with what type of politician do you want to represent your interests, but, occasionally, there are special referendums of public opinion that overshadow the determination of who might obtain a public service position in government. The “Brexit” vote in the UK to either “Leave” or “Remain” in the European Union is one of these occasions. This issue has been hyped for months. Debating rhetoric has stirred emotions and resulted in one tragic death of a public official, when some wacko decided to grab his personal 15 seconds of derision.
The passions of the British electorate have been stoked to a fever’s pitch. Both sides of the issue have been extremely vehement and vitriolic in supporting its own cause while condemning the opposite group to life in purgatory for even suggesting an opposing opinion. This seemingly overreaction of Britons is but one more example of the anger that is seething just below the surface in developed countries related to a decade of poor economic progress, the failure of public officials to correct the situation, and numerous immigration issues that come to the forefront, especially when times are tough.
After months of debate, the date for the deciding vote has finally arrived, the 23rd of June. British citizens are presently voting. We are told that polling groups in the UK do not have the infrastructure to gather exit poll surveys, so that we might not know the outcome until late the next morning. We will keep you posted, but here is the schedule:
On the whole, British citizens have had enough, but is an exit from the EU the right answer for anything going forward? Even if the vote is to “Leave”, there may still be a debate in Parliament to settle once and for all if this course is the right one to follow. On the other hand, Prime Minister David Cameron could act independently and take the next step to petition the EU regarding the UK’s intent to leave, without any more debate. That notification would then trigger a two-year process to hammer out a new trade agreement between the newly separated sovereign units.
Negotiations of this type are never easy. Compromise is not top of mind at the moment on the British Islands, and the group grope among EU ministers is part of the problem that UK officials have been trying to resolve for quite some time. It is not easy to secure anything that approaches a unanimous vote on any issue in the EU. This particular structural issue has confounded EU ministers from Day One. Gaining consensus is not as easy as it sounds. It will be incumbent upon UK officials to “secure support from at least 72 percent of the continuing member states representing at least 65 percent of their population, as well as consent from the European Parliament.”
As we also reported, “Financial ties related to trade, debt, and banking relationships have become so entwined that trying to predict the consequences of transitioning to something different is a near impossible exercise.” The stakes are definitely high, and those that wish to “Remain” refer to the economists that are supposed to be in the know: “The UK government has estimated that exiting the EU could cause the British economy to shrink by between 3.8 and 7.5 percent by 2030 — depending on how well subsequent negotiations for access to the European market ultimately went.”
Ultimately, the decision will impact all demographic groups a little bit differently. British farmers will stop receiving subsidies from the EU. Workers wishing to immigrate to the UK will confront new challenges, rather than an open door policy. Businesses may choose to relocate headquarters back to the continent for trade and tax reasons. The vaunted financial reputation of London may also be on the line. One reporter’s summary says it all: “Rarely has any nation been confronted with so simple yet consequential a choice, with young and old, rich and poor, urban and rural, north and south all given a hand in making history.”
Is now the time to secure positions in the forex market?
The foreign exchange market has been anticipating the outcome of this referendum for quite some time. Since February, the Pound has been recovering from a low of 1.38 versus the greenback, forming higher highs and higher lows in the process. It has oscillated in tune with weekly polling surveys, bouncing up against resistance that has gradually sloped upwards to its 1.49 value of today. Its ten-year monthly average is roughly 1.60, but analysts have claimed that, without positive economic results for the UK economy, the resistance ceiling should be 1.45.
Many of the opportunities for gain have passed, but if you believe that a “Leave” vote will transpire, then a shorting strategy may be warranted. In a few hours, the Pound may continue to inch upward. From a fundamental perspective, analysts that follow elections have built a convincing argument that the “Undecided” portion of the electorate, some 8.5% at this writing, could split “80/20” in favor of remaining. Current polls are running neck and neck, but undecided voters tend to stand behind a “status quo” position.
If “Remain” is the verdict, you can expect some euphoria to drive the Pound higher, unless it has already reached its peak. If the last statement is true, then a “Sell-on-the-news” reaction is to be expected. The Pound will fall. In both cases, a fading strategy works best under these kinds of circumstances. The “fade” on a “Remain” vote will pale in comparison to that for a “Leave” vote. Forex analysts in major banks have already suggested that parity with the USD may be in the cards under a “Leave” scenario. If you believe that London bookmakers are the “gurus” of the hour, “Remain” has odds of 75%.
And so we wait for the final results.
Your forex broker has more than likely warned you that serious volatility is on the way, somewhere between now and around 5 A.M. in London and midnight on the east coast of the United States. It may still take a few more hours to validate the final voting tally, but you will want to keep your access up with your broker. Follow his new alerts for the best coverage. News headlines may take too long to wind their way through publishing cycles. This advice, however, has a publishing cycle of its own, and by the time you read this article, the final tally may have already been announced.
It is now 10 pm, London time. Polls have officially closed. Initial clues of voter turnout will begin to appear in the next 2 and one-half hours, with voting results for the more automated regions appearing over the next hour. The lack of exit polls is currently being blamed on newscasters, who never commissioned them. They felt the process would prove inaccurate and lead to speculation, rather than real news. In any event, behold the events that follow and record them for posterity. You never know when another vote of this kind may appear in another market.
Hear were the major news alerts, as we received them:
Both sides are claiming victory. One poll gives “Remain” a “52/48” victory, while another gives the same result for “Leave”.
“There are reports starting to emerge on social media that turnout is very high,” says the Daily Telegraph.
Gibraltar votes to Remain. Voting elsewhere is too close to call, especially in bellwether counties. Pound Sterling is hovering around 1.48.
Initial tallies are beginning to arrive and they do not look good for the “Remain” team. London turnout is low due to bad weather. Financial markets are telling a new story, as the Pound falls below 1.42.
New forecasts from experts are pointing to a win for the “Leave” group.
With 10% of the voted counted, “Remain” trails “Leave” in a “46/54” split. Criticisms are starting to flow: “Turnout in Scotland has been considerably lower than expected. The SNP, the dominant party which ran huge campaigns for the independence referendum, UK election and Scottish elections, has run a lacklustre campaign with minimal ground activity. Sturgeon had more to say about criticising the Remain camp than making the positive case for Europe and she was nowhere to be seen until the dying days of the campaign.”
On another front, Tom Watson, the deputy Labour leader, tells Sky News: “It’s very hard to tell (what the result will be) with such a small number of results in. We’re not going to know the result for some hours, but whatever the result it will be very close. This will be a knife-edge vote. The country is more divided now than at the beginning of the process and that’s a great challenge for the Prime Minister.”
The forex market is reversing – the “GBP/USD” pair is gaining ground again – up above 1.45, but tentative. It had been as low as 1.40 at one point. When polls closed, it had actually reached 1.50, but then it plummeted. Is this reversal a positive sign for the “Remain” group? In the absence of exit poles, financial markets are the best guidance that we have, but the leading pollster saying that “Brexit” is the winner. With 17.8% of the voted counted, “Remain” has a small lead of 50.9% versus 49.1% for “Leave”.
How quickly things can change! With 41.9% reporting, the “Leave” group now has the advantage – 51.1% versus 48.9%. Bookmakers have now switched the betting odds, as well, joining the major pollsters in predicting a Brexit outcome. With this update, the Pound switched again, falling from 1.45 down to 1.36. The question now is how low can it go?
The “Leave” margin growing moderately, now 51.2% versus 48.8%, but now 61.8% of the vote has been counted. The Pound just bounced off resistance at 1.34, now back over 1.36, but the Pound has not been this low in over 30 years. Ukip leader Nigel Farage says David Cameron should resign “immediately” if he loses the referendum.
With 72.8% of the vote, “Leave” lead widens again – 51.8% versus 48.2%. The Pound is testing 1.33. Former Downing Street spin-doctor Alastair Campbell has said the UK is entering “uncharted territory” as it looks likely that the country has voted to leave the European Union. Nigel Farage, a leader for the “Leave” movement, has delivered a controversial victory speech claiming that, “We will have done it without having to fight, without a single bullet having been fired.” Unfortunately, one bullet was fired, resulting in the fatal shooting of well-respected British Labour MP, Jo Cox.
With 85.3% of the ballots recorded, the “Leave” camp maintains a 51.6% versus 48.4% lead over “Remain”. Major newscasters are proclaiming victory for the “Leave” initiative. The timescale for another Scottish referendum will be dictated by when and if David Cameron begins negotiations for Britain to withdraw from the EU, Alex Salmond has said. Labour leaders believe that the major swing votes came from the Labour working class. One leader quipped that, “It was all about immigration and jobs and I think we have to look at why that resonated so much.” The Pound is trying to form a floor at 1.35.
And the winner is… Brexit! With 97.6% of the vote counted, the “Leave” contingent has an insurmountable lead of over one million votes and a 51.7% versus 48.3% margin over the “Remain” group. As for turnout, it was heavy by any measure, amassing over 33 million votes in all. 72.2% of registered voters went to the polls, compared to 66.1% in the 2015 general election. The people have spoken. Financial markets are still assessing the damage, but the Pound is hovering around 1.34 at the moment. Major banking foreign exchange departments had predicted a fall to 1.30, if the “Leave” voters were victorious. It appears that they knew what they were talking about.
The Brexit referendum has finally reached a conclusion. The first step has been made, if the UK is truly to leave the EU. British citizens voted for sovereignty and the right to control their destinies, especially when it comes to immigration and jobs. It is now time for the vitriolic political rhetoric to cease for a bit, although many are already calling for David Cameron’s head. He is the one that proposed the Brexit referendum back in February, ostensibly to halt the never-ending debate over the issue. Will he resign? Will Parliament want to debate whether the vote means anything at all or decide to instruct the EU to begin the exit process?
Although the vote was a simple yes or no proposition, there now remain several unanswered questions. There is also a great deal of uncertainty about how this referendum outcome will ripple through global financial markets for the balance of this year and over the grueling two-year negotiation process to follow. Unfortunately, this story has legs and long ones at that. Our lives could have been much simpler with a “Remain” result, but life goes on. The sun will come up tomorrow, currency pairs will continue to fluctuate, and opportunities will be plentiful. Stay tuned!