Brexiters Know a Bad Trade When They See One
(Bloomberg Opinion) -- Capturing the mood of the public better than pollsters or politicians can win you big money. Prominent Brexit supporter Crispin Odey proved it when he correctly wagered that the U.K. would vote to leave the European Union.
It matters that the hedge fund manager now says he’s betting that the pound will rebound on the basis that Brexit won’t actually happen after all. It suggests that even Brexiters know a bad trade when they see one.
The trade hinges on events in Britain’s fractious Parliament, which is next week set to vote on Theresa May’s deal to leave the EU. The prime minister has argued that her agreement is the only way the U.K. can leave without the chaos a “no-deal” Brexit would entail. Businesses and foreign leaders have lined up to support May’s take-it-or-leave-it strategy. What’s good for her deal was therefore good for the pound, the thinking went.
Yet Odey and fellow Brexit supporter Peter Hargreaves are reading the parliamentary runes differently. In an interview with Reuters, Odey said that he has turned bullish on sterling. He reckons it could rise to $1.32 or $1.35, from about $1.28 today, because he thinks Brexit will be scrapped entirely. Hargreaves agreed, telling Reuters he was “totally in despair.” Their view of the chaos isn’t “deal or no deal” — it’s “Brexit or Remain.” And remain has the better chance of winning out.
They have a point. The pillars of support for a no-deal Brexit are falling away. Conservative lawmakers and cabinet members are increasingly turning against leaving the EU without a safety net. Public opinion has also become more hesitant about making the economic trade-off between leaving the single market and halting the EU’s freedom of movement.
A defeat for May’s deal might open the way to more benign, pound-friendly, alternatives. Some of these, like a “Norway-plus” deal, might bind the U.K. closer to the EU than May would like.
Hargreaves predicts that a delaying of the official Brexit deadline will be followed by a second referendum won by Remain. That is, perhaps, an over-confident prediction. Opinion polls pointed to a remain victory before the 2016 vote.
But currency traders clearly believe the risk-reward calculus has changed. Now, the more trouble May’s deal looks to be in, the greater the chances of reversing the economic damage, and so the pound finds more support. Witness how a report in the Evening Standard suggesting cabinet ministers might delay Brexit boosted sterling on Friday.
Some of Brexit’s most prominent backers are clearly waking up to the idea that the contrarian, profitable bet of 2019 is the opposite of what it was in 2016. You don’t have to believe that Brexit will be scrapped entirely to bet on a rising pound — but it certainly helps.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Lionel Laurent is a Bloomberg Opinion columnist covering Brussels. He previously worked at Reuters and Forbes.
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