Despite May's attempt to secure public and political backing, it seems unlikely the deal will be passed on Tuesday.
As a defeat is widely expected, markets would react to the size of the defeat, although we doubt the market reaction will be significant, as political uncertainty is likely to remain elevated.
Many political analysts say it is likely that PM May will try to hold a second vote in the House of Commons at a later stage. What happens if the deal is voted down a second time? Well, then we are in uncharted territory.
Although we still cannot rule out a 'no deal Brexit', we think the likelihood of this scenario has declined
May's deal is probably the hardest version of Brexit on the table right now, which is positive, as it is what we call a 'decent Brexit'.
The probability of a second referendum has increased over the past couple of months
Recently, a Norway-style option has gathered more attention. We believe the likelihood of this scenario playing out is low. We still believe the likelihood of a new election is low.
In our main scenario, we still expect a 'decent' Brexit and we maintain the long-held view that EUR/GBP will break lower towards 0.82.
The vote on 11 December no longer represents a significant 'digital risk' for the FX market and GBP. Hence, we see a high risk that Brexit will remain unresolved when we enter 2019, which should keep EUR/GBP in check, albeit volatile around the 0.87-0.90 range for a prolonged period.
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