There are seven ways the Brexit madness can end

Brexit has been one of the great self-inflicted wounds on a country and currency in the past 20 years. It's madness that's compounded by ineptitude and at the moment there's no clear path out.

So lets look at all the possible paths and handicap them.

1) This deal is passed
A few weeks ago, Theresa May thought she could twist some arms and get a deal through parliament. As it came down to the vote deadline, she realized that failure was inevitable and pulled the vote. Most troublingly, she hinted it was going to lose badly.

I thought there was a chance that enough Labour MPs would support a vote to get it over with, if only to end the uncertainty and move on. Corbyn has calculated differently and it doesn't look like she will be getting any help.

Odds: 5% (down from 35%)

2) No deal Brexit
Brexit has been a self-inflicted wound, just like these posters seen outside parliament today.

However a no-deal Brexit would be a gunshot to the heart. At the final moment, you would expect common sense to prevail. Yet there isn't much in UK politics to give you the impression that anyone is in it for anyone but themselves. The chance of a catastrophic mistake has risen.

Odds: 5% from 1%

3) New deal from the EU
This is the toughest one to handicap. The EU has repeatedly and loudly said the deal won't change. If you take them at their word, the odds are 0% of a new deal. If you go on experience, the odds are much higher. There are no red lines in the EU. Merkel and other UE leaders don't want a no-deal Brexit and if she believes the UK is crazy enough to go through with it, there will be something better on the table.

Odds: 15%, unchanged

4) Delay in Article 50
At some point this will be the responsible thing to do. The vote to leave the EU is likely to be defeated in the third week of January and then there will be no obvious path forward. How can the UK government allow businesses to waste millions of pounds on stockpiling for a no-deal Brexit? A delay doesn't solve anything but it at least sends a strong message that a no-deal Brexit won't happen.

Odds: 20%, from 10%

5) Another referendum
An opposition parliamentarian today lamented that the government wasn't respective people's "democratic right to change their minds". That's a cringe-worthy take on trying to reverse something that people voted for. I think another referendum is a dark path to go down, especially since the outcome isn't clear. Yet a good portion of all UK political parties want it to happen, as do many of the London newspapers. May is dead against it but she has few options.

Odds: 20%, from 10%

6) New elections
Conservatives can cling to power as long as their party holds together and the DUP continues to back them. The odds of both are falling but it's tough to believe Conservatives would torpedo their own party in an election they're likely to lose. The DUP is also relishing holding the balance of power. But crazy is in the air in the UK and some Conservatives despise May and want to rebuild with someone else.

Odds: 25% from 15%

7) May resigns
May has cemented her hold on party leadership for 12 months after comfortably surviving a leardership challenge. In order to continue she had to promise party members a better deal and that she won't stick around for another election. Leaving now would destroy any chance of a legacy and she desperately wants to be the one to take the UK out of the EU. But if she can't get that done, what other choice does she have?

Odds: 10% from 15%

The outlook for the pound
When you scan through the outcomes, most of them would eventually lead to some stability and a rebound in the pound. However virtually all of them would lead to more near-term pain. So it's likely that the pound will rebound but there's no sense in buying it until at least so of the clouds (and tail risks) dissipate.

Source: FX Live

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