Article 50 Has Been Invoked! Sterling Reaction (James Lovick)

After 9 months of great uncertainty for sterling exchange rates, the formal process of withdrawing from the European has finally commenced with the Article 50 letter received by Donald Tusk this afternoon. The reaction so far has been unusually mixed but generally positive so far. GBP EUR has made healthy gains of 0.6% touching a high of almost 1.16 whilst GBP USD has seen minor gains. The pound has also made reasonable gains against the Swiss Franc which is important to spot as the Swiss Franc normally strengthens in times of heightened uncertainty. What we haven’t yet seen and this is the crucial detail, is an official response from the European Union. Major volatility for the pound could still follow depending on the level of response.

Where next for the Pound?

Although the market reaction has so far been limited there is likely to be considerably more reaction seen in the coming days. The Article 50 letter from Theresa May makes clear that she expects both the exit bill and future trade deal to be discussed simultaneously. This is against the wishes of the European Union who seek to tackle both issues independently. As such this to me looks like a major battle awaiting and there could be fireworks to come. A strong reaction from the EU which is likely to arrive in the coming days could prove negative for the pound if there is no room to manoeuvre on this fairly pressing point. Conversely a more flexible approach to commence negotiations would in my view be welcome for sterling and a small rally may be seen on such an outcome.

In summary it is all very much unchartered territory at present so clients who are looking to move from one currency into another would be wise to get in touch to consider the options which are available. There could be some very substantial market movements to come and creating opportunities for buyers and sellers alike.

GBP AUD Exchange rates have been performing well over the last week in the run up to today’s events although levels have slipped materially to 1.62. There is an upward trend for GBP AUD and those clients looking to sell Australian dollars for pound may wish to capitalise on the recent slide in the pound.

Data in the UK is light tomorrow although the markets will be looking for any new political statements surrounding Article 50, so this is likely to be a volatile period. UK Gross Domestic product numbers are released on Friday and this represents the final revision for the fourth quarter. Anything steady or even positive is likely to help support the pound.

If you would like further information on sterling exchange rates or any of the major currencies and to discuss how we can assist then please feel free to contact me on 0044 1494 787 478 and ask one of the team for James. Alternatively, I can be emailed directly on [email protected]