Pound Sterling slips day after MPs clear Brexit bill for Theresa May to trigger Article 50

Strategists say that the volatile nature of the currency in recent days likely provides a taste of things to come

Click to follow

The pound slipped against the euro and hit a fresh eight-week low against the dollar on Tuesday, a day after MPs and Lords passed a bill paving the way for Theresa May to kick off the Brexit process by triggering Article 50.

Sterling was recently trading around $1.214 against the dollar and around €1.139 against the euro, with traders citing mounting uncertainty as the reason for the latest sell-off.

“The triggering of Article 50 has been well telegraphed and is unlikely to cause a major stir for sterling in itself, in our view,“ said John Wraith, the head of UK rates strategy and economics at UBS, said. He added, however, that “it does increase headline risk, particularly as the opening negotiating positions of the two sides are far apart”.

On Monday, the pound had jumped after Scotland’s First Minister Nicola Sturgeon demanded another independence referendum, to be held in late 2018 or early 2019. Strategists said that the volatile nature of the currency in recent days likely provides a taste of things to come.

“There are still significant questions about what Brexit will look like and what the implications will be, and the pound will stay vulnerable until we get greater clarity,” said Alexandra Russell-Oliver, a market analyst at Caxton.

Michael Stanes, an investment director at Heartwood Investment Management, said that he was limiting his exposure to any UK assets at the moment, including equities, many bonds and the pound.

“Until we get more clarity on the political and economic outlook, we are not yet ready to repatriate assets back into the UK,” he said.

Going forward, forecasts for where the pound is heading are mixed.

FXTM’s chief market strategist Hussein Sayed said that Brexit now seems wholly priced in to where the pound is trading, but that it’s too early to say that the currency has “found a floor”.

“The beginning of the formal negotiations might indicate that there’s still room for a further drop, especially if the EU takes a hard stance,” he said.

The currency is down about 18 per cent against the dollar since the EU referendum in June and while there seems to be a broad consensus in markets that the prospect of a hard Brexit is already being reflected in where the currency is trading, many believe that it could still trend lower over the medium term.

Deutsche Bank economists in early March predicted sterling would plunge to $1.14 by the end of June, which would be a new 31-year low for the currency, even including the flash crash that sent the pound plunging more than 6 per cent on 7 October.

Analysts at Danske Bank earlier this month said that they expect the pound to fall to $1.19 by the end of March.

Click here to find out what Brexit could mean for exchange rates, brought to you by Independent partner, HIFX.

Comments