The pound jumped sharply on Tuesday after Prime Minister Theresa May said in an eagerly anticipated speech that she wanted the UK to emerge from Brexit negotiations “more united” and “outward looking” than before.
Ms May, in a speech at Lancaster House, emphasised Britain’s aim to build relationships outside of the European Union while remaining a “best friend” to the bloc, sending the pound rallying against the dollar.
In afternoon trading, sterling hit $1.2397, a rise of nearly 3 per cent on the day, putting it on course for its biggest one-day rise against the US dollar since 2008. It was trading at $1.2384 at market closing time.
The rise is sterling's biggest increase against the dollar since 20 June last year, ahead of the referendum.
Against the euro it was up 0.7 per cent at €1.1445.
“We are leaving the EU but we are not leaving Europe,” Ms May said.
Ms May also said she recognises how important it is to provide business and the public sector with “as much certainty as possible”.
Confirmation by the Prime Minister that Britain will not continue membership of the single market momentarily took some shine off the pound, but the prospect of not making regular contributions to the EU budget and plans for a new customs union helped the currency to hold on to its gains.
The pound extended its gains further after Ms May said the government will put the final Brexit deal to a vote in both houses of parliament.
Rabobank currency strategist Jane Foley said that much of the pound’s initial rally came after Ms May promised to put any final plan to a vote, but also cautioned that this provides “another element of confusion” around what would happen if the deal is not passed by parliament.
Ms Foley further said although Ms May voiced her ambition for a free trade deal with Europe that “the signals from the EU suggest that this is not on the cards”.
“So there is likely to be a lot of volatility caused by this debate in the next couple of years,” she said.
Meanwhile, the FTSE 100, which is dominated by overseas earners and tends to come under pressure when the pound is stronger, was recently down 0.5 per cent.
Sterling has been on a rollercoaster ride since the Brexit vote in June.
The currency has fallen about 19 per cent against the dollar since the UK voted to leave the EU in June’s referendum. It is one of the worst-performing currencies in the world for the period and remains incredibly volatile.
In October, it suffered a ‘flash crash’ overnight, plunging to a 31-year low in a matter of minutes and sparking market chaos in early trading.
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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