Sign up UNITED KINGDOM
Proactive Investors - Run By Investors For Investors
Markets

Pound headed for two years of volatility as Brexit set to begin on 29 March, analysts say

Analysts believe the pound is headed for a long period of volatility as the government plans to begin Britain's formal exit from the European Union at the end of the month
May
Theresa May will trigger Article 50 on 29 March

The pound weakened against the dollar today after the government confirmed Prime Minister Theresa May will trigger Article 50 on 29 March, kicking off the two-year formal process of Brexit.

The UK’s representative to the European Union, Sir Tim Barrow, notified the block’s council president, Donald Tusk, of the date in a letter this morning.

Tusk will receive another letter from May on Wednesday next week to invoke Article 50 before she provides a statement to MPs in Parliament.

May repeated that she intended to get the best possible deal for the UK during a visit to Swansea after the date was announced.

“I have set out my objectives. These include getting a good free trade deal. They include putting issues like continuing working together on issues like security at the core of what we are doing. We are going to be out there, negotiating hard, delivering on what the British people voted for.”

EU Commission spokesperson Margaritis Schinas said everything is ready for the next steps after Article 50 has been triggered.

The pound fell 0.14% versus the dollar at US$1.2379 in afternoon trading, though the announcement was widely expected. The government has previously stated it would trigger Article 50 by the end of the month.

“Sterling handed back its gains and turned negative for the day as the market reacted to the announcement - despite the fact it’s a known quantity we have to assume that the stark reality of exiting the European Union is hitting home,” said Neil Wilson, analyst at ETX Capital.

“It’s fascinating that the pound sunk quite so quickly as we knew the end of March was the preferred date. Quite what has changed is hard to say except a hard dose of grim reality.”

Volatility for sterling and UK equities expected... 

Wilson expects a long period of volatility for the pound and UK assets as the government begins Brexit negotiations.

Craig Erlam, senior market analyst at Oanda, echoed Wilson's remarks on the pound.

"While the drop off in the pound isn’t too severe, it was enough to take it into negative territory for the day," he said. "It also acts as a reminder that the next two years will likely continue to be volatile for the UK currency as well as the FTSE and UK Gilts, with traders still concerned about the road the country is on."

A weaker pound is also set to push inflation higher. The Office for National Statistics is expected to reveal tomorrow that consumer price inflation rose an annualised 2.1% in February, above the Bank of England’s 2.0% target.

Kristin Forbes, the outgoing hawk on the Monetary Policy Committee, voted in favour of an interest rate hike at the last meeting to protect the pound and fend off rising inflation. Forbes, who was the only member to vote for a rate increase last Thursday, believes inflation is likely to remain above target for at least three years. 

Higher inflation has added pressure on retailers as consumers begin to curb spending. UK retail sales fell 0.3% month-on-month in February as average store prices rose, according to the latest official figures.


© Proactive Investors 2017

Proactive Investor UK Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use