Edition: United Kingdom  
One News Page
“Probably the fastest-access news portal in the world”
> >

What will happen to sterling when Theresa May triggers Article 50?

City A.M. Monday, 13 March 2017
What will happen to sterling when Theresa May triggers Article 50?Now the Budget is out of the way with barely a mention of Brexit, currency traders’ attentions can turn to the next big set piece event in the political calendar: the point Prime Minister Theresa May triggers Article 50.

May could send notification to the EU as soon as tomorrow if MPs in the House of Commons vote down amendments from the House of Lords.

Following the provisions of the article (from the Lisbon Treaty) will officially start the process of the UK leaving the EU, the topic which has dominated sterling’s prospects since 23 June.

*Read more*: The House of Lords just handed Theresa May a second defeat on Brexit

The pound hit its lowest point since January last week as the House of Lords debated amendments to the Article 50 bill. Its last visit below $1.22 against the US dollar came before Prime Minister Theresa May announced the UK will leave the EU’s Single Market, although it has since recovered to trade at $1.2216.

Yet the consensus is that the triggering of Article 50 itself will not be the shock that events of the past few months might imply.

*Appropriate pricing*

Jasper Lawler, senior market analyst at London Capital Group, says: “The actual triggering of Article 50 is not going to be the cause of some calamitous movement.”

Some volatility is to be expected, as around any big political event. The pound could make a knee-jerk movement as the Prime Minister Theresa May announces she has notified the EU of the UK’s decision to leave, followed by some profit taking, Lawler says.

It is difficult for an event which will be so heavily choreographed to come as a shock to markets, says Connor Campbell, analyst at Spread Ex.

Indeed, the start of the official negotiation process (rather than the current cross-continental shadow boxing) could mark less sensitivity in the currency to every last utterance of obscure European politicians.

*Hot blood*

However, more important than the actual triggering could be the response of European politicians over the next days, weeks, and months.

Chris Beauchamp, an analyst at IG, warns “we could get a more dramatic response from the EU than expected”, depending to a certain extent on the manner in which it is announced.

Joel Kruger, foreign exchange strategist at LMAX Exchange, says: “Once we trigger there’s going to be a lot of hot blood between the UK and the EU.”

Signs of a deal being harder to reach from EU politicians will definitely affect investor sentiment, says Kruger, but so far “there’s no new issue that hasn’t emerged since the Brexit analysis before the vote.” Risks of the pound falling below $1.15 are low at this point, he says.

*Read more*: Six risks of Brexit "no deal" after Article 50, as MPs warn May to plan now

What the trigger will do, however, is firm up plans, with a definite negotiation period and the prospect of a rollercoaster late 2018.

Chris Bailey, European strategist at Raymond James, said: “Article 50 is only the prelude to the real travelling and arriving” for the journey out of the EU.

*Looking across the pond*

However, with the meat of negotiations far ahead, investor attention will inevitably turn to the prospects for the Federal Reserve to raise interest rates when their Open Market Committee (FOMC) meets tomorrow and Wednesday, with the announcement due at 7pm UK time.

“Shorter-term in the States it’s all about the Fed,” says Bailey. “The market at the moment is ok with the Fed tightening a bit.”

The chances of an interest rate rise implied by the movement of federal fund futures are approaching 90 per cent, according to CME Group’s calculations, with other measures indicating an even higher probability.

*Read more*: Fed policymakers prepare to hike interest rates “fairly soon”

A higher federal funds rate would likely lead to a strengthening dollar, and a consequent sell-off in sterling. Although a shock hold from the Fed could equally cause a resurgence in the pound.

Over the longer term investor judgements of the pound’s value will continue to hinge on the prospects for the UK’s trading relationships around the world.

“If we start to see a softer type of Brexit the pound will recover,” says Kruger. “Longer-term the valuations are attractive for the pound.”

If a trade deal doesn’t collapse over the next two years sterling could see a further recovery, says Bailey, with a “fair value” of $1.35 to the pound – a level last seen in June.
0
shares
Share on
Facebook
Share on
Twitter
Post on 
Reddit
Share by
Email
 
Source: Financial Times Studio - < > Embed

News video: Sterling dips ahead of Budget day

Sterling dips ahead of Budget day 01:06

Michael Mackenzie on what to watch in markets on Wednesday

Recent related news

Sterling nears 10-month high against dollar

Sterling has steadied close to its highest levels in ten months against the dollar today after comments from UK finance minister Philip Hammond about a...
RTE.ie - EntertainmentAlso reported by •MailOnlineIrish TimesDNA

Global Markets, Futures Slide Spooked By Poor Amazon Earnings, US Politics

Global Markets, Futures Slide Spooked By Poor Amazon Earnings, US Politics
S&P futures have tracked both European and Asian markets lower, which were dragged down by the big EPS miss and guidance cut reported by Amazon on Thursday....
Zero Hedge - Markets

Sports Direct profits drop by almost 60% as pound sterling slump bites

Sport Direct sources most of its products from Asia, buying them in dollars, but did not have hedges in place ahead of the dramatic decline in the value of...
Independent - Business

Hermes revenue growth slows but weak sterling helps UK sales

Hermes revenue growth slows but weak sterling helps UK sales
French luxury brand Hermes was hit by slowing sales growth in June, but has continued to benefit from sterling's devaluation in the UK. *The figures* In...
City A.M. - Business

Sterling's slump has forced importers to raise prices 9% 

Sterling's slump has forced importers to raise prices 9% 
While most exporters are benefiting from sterling’s slide, importers are suffering and 61 per cent have raised prices – by an average of 9 per cent in the...
MailOnline - MoneyAlso reported by •DNA

Private equity firm 3i announces £68m gains from weakening sterling

Private equity firm 3i announces £68m gains from weakening sterling
The drop in sterling's value may have caused a headache for some UK businesses, but London-listed private equity house 3i has managed to turn it to its...
City A.M. - Business

European Union: Reynolds Authors A Template For Enhanced Equivalence: Creating A Lasting Relationship In Financial Services Between The EU And The UK - Shearman & Sterling LLP

As the negotiations for Britain's departure from the EU begin, the spotlight is on future trade with the EU and globally.
Mondaq - Legal

Worldwide: Governance & Securities Law Focus: Europe Edition, July 2017 - Shearman & Sterling LLP

In this newsletter, we provide a snapshot of the principal European, US and selected international governance and securities law developments of interest to...
Mondaq - Legal


You Might Like


Other recent news in Business

Amundi reveals net outflows in the SECOND QUARTERPORSCHE to ditch Le Mans a year early and follow Mercedes into Formula E
Yet another HEALTHCARE failure for Trump as paranoia stalks the White HouseHorse RACING betting tips: Back Enable to be crowned queen at Ascot
NORTH KOREA hackers 'want cash not secrets'REPUBLICANS drop plans for import tax
Toshiba reaches $2.2 billion deal over SCANA's SOUTH CAROLINA nuclear projectIn Puerto Rico BANKRUPTCY, mutual funds compete with themselves
Starbucks signals U.S. caution on lower profit; closing TEAVANA storesVerizon in talks to buy WideOpenWest's CHICAGO network: sources

Twitter

pic

Sir Randall Gaming @luigy787 @inkydojikko Yeah because this is what will happen https://t.co/3qFche2ydM Jim Sterling nailed in game voice chat. 2 hours ago

pic

B&P Real Estate What will happen to Sterling exchange rates this week? https://t.co/1ZZO3MY55R 1 day ago

pic

Clive RT @eyejosh: @solange_lebourg @ajhanlaurence @FT Wondering what will happen to Sterling when - as is almost certainly inevitable because of… 3 days ago

pic

Terry Enga RT @eyejosh: @solange_lebourg @ajhanlaurence @FT Wondering what will happen to Sterling when - as is almost certainly inevitable because of… 3 days ago

pic

Stephen Ralph RT @eyejosh: @solange_lebourg @ajhanlaurence @FT Wondering what will happen to Sterling when - as is almost certainly inevitable because of… 3 days ago

pic

Sandra Saboteur 74% RT @eyejosh: @solange_lebourg @ajhanlaurence @FT Wondering what will happen to Sterling when - as is almost certainly inevitable because of… 3 days ago

Environmentally friendly: One News Page is hosted on servers powered solely by renewable energy
© 2017 One News Page Ltd. All Rights Reserved.  |  About us  |  Disclaimer  |  Press Room  |  Terms & Conditions  |  Privacy Policy  |  Content Accreditation
 RSS  |  News for my Website  |  Free news search widget  |  Help  |  Contact us  |  DMCA / Content Removal
How are we doing? Send us your feedback  |   LIKE us on Facebook   FOLLOW us on Twitter   FIND us on Google+