Buy the rumour and sell the fact: the Brexit case

‘Buying the rumour and selling the fact’ is a Forex market strategy where an exchange rate (e.g. the EURUSD) would move higher due to traders buying because of a rumour they have heard about the economic or political events of a State of which the exchange rate represents. Traders will hear the rumour and begin buying, under the belief that the rumour will eventually turn out to be true and they will make a significant amount of money.
The Brexit tragicomedy supplies a very good example of a situation where this strategy has been used by Forex traders to trade the pound. Traders went short on the GBPUSD (or GBPEUR) on rumours that a ‘no deal’ or a ‘hard Brexit’ could occur, and went long when rumours hinted for a Brexit delay or a ‘soft Brexit’. The agreements signed by Prime Minister Theresa May and the European Commission represent examples where traders went long on the pound. But then, these agreements failed to be backed by the British Parliament.
Let’s look at some concrete examples.
On 10 December 2018, PM Theresa May realizes of the opposition to the EU divorce agreement, which she signed with Brussels a few days earlier, from members of her party and allies, the Northern Irish unionists, regarding the backstop clause and decides to postpone the ratification vote in the Parliament. Traders had already priced in the news for two days and the pound lost, on the day of May’s declaration, -1.24%, to recover +1.16% a few hours later.
On 15 January 2019, the House of Commons rejectes the May agreement with 432 votes against. Also in this case, the result had already been ‘bought’ by traders, who had bet on the rumours of the rejection in the previous three days, only to sell after the vote took place.
On 12-14 March, the House of Commons votes again for three motions submitted by the government on Brexit. The first, which re-proposes the agreement negotiated with the EU, slightly modified with regard to the Irish border clause, is rejected on 12 March with 391 against and 242 in favour. An outcome that, already in the hours before the vote, had seemed inevitable. Rumours of the likely chaos generated by that decision had already been priced in by traders, who had sold off the pound in the late morning.
On 13 March, the Parliament expressed its opinion on the possibility of a ‘no deal’ on the date set for 29 March; with 312 votes in favour and 308 against, the House of Commons approves the amendment which excludes this possibility. May undergoes another humiliation, when unexpectedly the amendment passing the ‘no deal’ in the House of Commons is approved. Traders buy the ‘fact’ and the pound appreciates by +2.02% against the dollar.
Finally, on March 14, the House of Commons approves, with 412 votes in favour and 210 against, an amendment that provides for a postponement of the exit date beyond March 29 to have more time to prepare, once an agreement has been approved with the EU. In chaos, traders return to sell and the pound loses again -0.73%.
On May 24, May announces her resignation as leader of the Conservative Party, for failing to complete the exit from the bloc. Traders sell the ‘fact’, going long on the pound, after buying the resignation rumours in the previous four days, in which the pound had systematically lost against the dollar.