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Pound sterling surge proves short-lived after Theresa May’s Brexit speech

Sterling fell against the dollar and the euro after Tuesday’s major rally

Josie Cox
Business Editor
Wednesday 18 January 2017 14:15 GMT
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The pound has endured a rollercoaster ride sine June’s referendum
The pound has endured a rollercoaster ride sine June’s referendum

The pound slipped against a slew of currencies on Wednesday, a day after recording its biggest single-day surge in years, spurred by Prime Minister Theresa May offering some clarity on her vision for Brexit and the sharp decline of the dollar since the referendum.

Sterling ended the day around 0.9 per cent lower against the dollar and 0.6 per cent down against the euro, trading around $1.23 and €1.15 respectively. It had previously been as low as $1.22 and €1.14.

Even after Wednesday’s jump, strategists have been quick to question the sustainability of the pound’s rally.

“Many questions about the future relationship between the UK and the EU remain open,” Unicredit currency strategists wrote in a note on Wednesday morning. “For now, we find it premature to turn bullish on sterling.”

David Meier, an economist at Julius Baer, also forecast that sterling’s Tuesday rally would prove temporary. “In yesterday’s eagerly awaited Brexit speech, UK prime minster May finally delivered her visions of an independent UK,” he said. “However, this is only the beginning of a long process and we expect further [sterling] weakening once negotiations heat things up later this year.”

The pound has endured a rollercoaster ride since June’s referendum, falling about 18 per cent against the dollar, and remains one of the worst-performing currencies in the world for the period. In October, it suffered a ‘flash crash’ overnight, plunging 9 per cent in a matter of minutes and sparking market chaos in early trading.

What does the falling pound mean for you?

Last week, the Bank for International Settlements concluded that the crash was not a unique or unprecedented event but “a new data point in what appears to be a series of flash crash events occurring in a broader range of fast electronic markets than was previously the case in the post-crisis era”. It also warned that such events “have the potential to undermine confidence in financial markets and hence impact the real economy.”

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