EU elections in the UK: Brexit party and pro-Remain camp tussle for influence on Brexit and GBP/USD

The UK was supposed to be out of the EU nearly two months ago, looking at the European Parliament elections from across the Channel. But as the House of Commons failed to approve May's Brexit deal or barely any other proposal, the people will have an opportunity to have their say. 

The European elections do not substitute parliament's "meaningful vote" nor constitute a second referendum, but they serve as a very broad albeit imperfect survey on what citizens want. 

Brexit Party vs. Remain trio

Parties that have a clear opinion on Brexit are expected to do well. First and foremost, Nigel Farage's new Brexit party is set to come out on top with its simple message of exiting the EU without a deal. Farage, the former leader of UKIP, has already changed the course of British history by promoting Brexit for many years. The former commodities broker siphoned votes from the Conservative Party, prompting the then PM David Cameron to hold the EU referendum in 2016. 

Farage is set to draw Tory votes once again, winning a total of around a third of the votes, causing a humiliating defeat for the ruling party.

On the side of the spectrum, three pro-Remain parties are expected to make similar achievements. The centrist Liberal Democrats have always had a clear pro-European, anti-Brexit stance and are experiencing a comeback, perhaps ending second, ahead of Labour. The Green party also opposes Brexit and enjoys the rise of environmental issues to the top of the agenda. The newly-formed Change UK party led by former Labour and Conservative MPs is expected to complete the trio.

What about the big parties?

Both mainstream parties which dominate UK politics are on course to lose votes. They dismiss these elections as being a meaningless protest vote as the UK is on its way out. However, they are also punished for their approach to Brexit. Tory voters, leaning heavily towards leaving the EU, are dismayed by May's failure to deliver Brexit. And Labour voters, that lean towards Remain, are frustrated with the ambiguous stance by the party and its leader Jeremy Corbyn. 

As it is hard to know what voters of the main parties think, the battle between Farage and the Remain trio may be more decisive in determining the mood in the British public.

The results, Johnson's choices, and the pound

UK PM is on her way out amid a revolt from within her backbenchers and ministers alike. The leading candidate is Boris Johnson, a supporter of Brexit but not a hardcore idealogue like some of his peers. 

If the Brexit party not only wins but comes well ahead of the LibDem, Greens, and Change UK trio, it may be perceived that Brits favor a hard Brexit. Johnson's candidacy will likely get a boost, and as PM, he may seek an abrupt exit from the EU, an outcome which is negative for Sterling.

However, if both blocs are close or if the trio comes on top, a pro-Remain candidate may have a chance at winning the internal Conservative contest and leading a softer approach. Chances remain slim as the former London mayor is popular among the base of the party. Nevertheless, after having reached 10 Downing Street, Johnson may moderate, steering his party towards the center of British politics. And that may be very positive for the pound. 

Conclusion

While the EU elections cannot be fully read as a broad opinion poll on Brexit, the results may shape policymaking on the hot topic and may impact the pound. An overwhelming victory for Farage over the Remain parties may draw the UK closer to hard Brexit and hurt the pound, while a triumph of the pro-EU camp may move Boris Johnson, probably the next PM, towards a softer stance.

See GBP/USD: If Boris Johnson becomes PM, volatility will rise, but Sterling may not necessarily suffer