HomeContributorsFundamental AnalysisPound Sinks As May Prepares To Trigger Article 50

Pound Sinks As May Prepares To Trigger Article 50

  • Speculation likely to continue as meaningful talks could take months to begin
  • GBPUSD off more than 1.5% in 24 hours as sterling shows continued sensitivity to Brexit
  • Sterling to remain volatile as May appears before parliament around midday
  • Scottish referendum may also be addressed after Edinburgh voted in favour on Tuesday

More than nine months after the UK voted to leave the EU and end its 44 year membership of the block, PM Theresa May will finally today deliver a letter officially triggering article 50 and beginning at least two years of tough negotiations.

There has been endless amounts of speculation over the last nine months about how the negotiations are going to proceed and what will and will not be discussed, something that is unfortunately likely to continue for a while yet. And while the triggering of article 50 officially begins two years of negotiations, we could actually be waiting months before any meaningful talks get underway.

The pound has been very sensitive to this speculation since last June and we saw more evidence of this overnight after pictures emerged of May signing the letter invoking article 50 to be delivered to EU President Donald Tusk later today. Sterling had already gradually lost ground against the dollar throughout the session, having traded close to 1.26 in early European trade, but another bout of selling in illiquid trade took it below 1.24 shortly after the photos emerged.

The pound is likely to remain quite volatile throughout today’s session, particularly around May’s appearance at PMQs just after midday. May will appear in parliament to discuss the triggering of article 50 just as the letter is being delivered to Brussels and what she says today will likely play a big role in how the pound trades, with the FTSE and UK bonds also being sensitive to her comments. The FTSE has tended to benefit from the pounds fall, as we saw yesterday and are likely to see shortly after the open. Given the selling that we’ve seen over the last 24 hours, it is worth being prepared for a possible case of traders selling the news and buying the fact today. Of course, that will heavily depend on May’s comments this afternoon.

May could also address the Scottish parliaments vote on Tuesday to hold a second referendum, which came just one day before the UK triggered its own departure from the EU. May has not been very receptive to the idea previously and I would expect more of the same talk today. While again expected, this was likely another contributor to the pounds decline yesterday and it could be sensitive to it again today.

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