UK markets set for 'wild ride' as investors await Theresa May's Brexit speech

Theresa May’s speech has already caused caused big shifts in the pound, following weekend media reports that she could use it to spell out the path of a hard Brexit

The pound was marginally higher against the dollar, having on Monday hit it lowest level in more than three decades (Reuters)

The pound and UK stock markets were on edge early Tuesday with investors bracing for Prime Minister Theresa May’s much anticipated Brexit speech.

The pound was marginally higher against the dollar, having on Monday hit it lowest level in more than three decades - bar October’s flash crash - while the UK’s bluechip FTSE 100 stock index inched lower.

Ms May’s speech has already caused big shifts in the pound, following weekend media reports that she could use it to spell out the path of a hard Brexit, announcing that the UK will leave the EU’s single market to regain control of immigration policy.

The pound fell as low as $1.1988 on Monday but recovered slightly to trade above the $1.21 mark on Tuesday morning. However, sterling remains the weakest major currency for the week. The FTSE 100 snapped a 14-session winning streak on Monday and was recently down around 0.4 per cent on the day.

Neil Wilson, senior market analyst at ETX Capital, said: "We're expecting a wild ride for the pound today. These gains are largely down to dollar weakness, however, as the greenback has suffered a bit of a sell-off overnight and gold has risen amid a bid for safer assets ahead of this speech and Donald Trump's inauguration on Friday."

He added that another reason the pound is not in negative territory is because details of Ms May's speech that have been made public, such as plans to leave the single market and customs union, represent nothing new.

"Traders are waiting for more detail from the PM before making big decisions," Mr Wilson said.

Connor Campbell, financial analyst at Spreadex, added: “The fact that the currency knows much of what May is going to say likely helps, as does the increase in clarity this speech will hopefully bring about.”

Moves in the pound were relatively muted towards the end of 2016, but January has revived investor anxiety about Brexit outcomes and sent fresh jitters through currency markets.

“The harder the Brexit, the weaker the pound,” says Christian Gattiker, chief strategist and head of research at Julius Baer. He said that although it is hard to predict what Mrs May will say, “perception of it will weaken or strengthen the British pound.”

Sterling has fallen about 19 per cent against the dollar since the UK voted to leave the EU in June’s referendum, with declines since the initial aftermath of the vote mainly sparked by concerns that Prime Minister Theresa May plans to quit the EU’s single market in order to regain control of Britain’s borders and laws.

​Kathleen Brooks, research director at CityIndex, said the pound is still "very,very vulnerable".

She said: "By and large the pound is still very, very vulnerable. We've seen that the rallies in the pound, since the EU referendum in June, have been very weak, with the declines very prolonged."