FX round-up: Brexit start date ushers in new era of punishment for sterling

Andrew Schonberg Sharecast | 20 Mar, 2017 18:28 | | |

Money pound sterling magnifying glass

Sterling had a tough time on key crosses Monday after PM Theresa May's office said Article 50 will be triggered on 29 March, beginning UK's divorce from the EU and ushering in a new era of punishment for the already threadbare currency.

At roughly 17:05 GMT, sterling was down 0.4% to $1.2347, and down 0.36% to €1.1501. The issue also ebbed on the aussie, loonie, kiwi, rand and yen.

At the same time, the dollar-spot index was up 0.1% to $100.400.

"Sterling may be in-store for some serious punishment this week," said FXTM research analyst Lukman Otunuga in a statement, extrapolating from the currency's reaction to news of Brexit talks beginning next week.

"It is becoming clear that the Brexit developments are likely to dictate where sterling trades in the medium to longer term with uncertainty effectively limiting any extreme upside gains."

Otunuga reckoned sterling bears might return on a move below $1.2300, adding risk appetite was absent from the market after the G20 summit decided to drop a pledge to avoid trade protectionism in its communique after US pressure.

Craig Erlam, senior market analyst at Oanda, observed the timing of the Article 50 trigger was no real surprise, sterling's reaction showed its sensitivity to even expected Brexit news.

"While the drop off in the pound isn't too severe, it was enough to take it into negative territory for the day," added Erlam.

"It also acts as a reminder that the next two years will likely continue to be volatile for the UK currency as well as the FTSE and UK Gilts, with traders still concerned about the road the country is on."

Neil Wilson, senior market analyst at ETX Capital, reached a similar conclusion on sterling's sensitivity going forward in the face of Brexit's "grim reality".

"We have to assume that the stark reality of exiting the European Union is hitting home," said Wilson in a statement.

"We’re now in for a long period of volatility for the pound and UK assets as the government embarks on protracted and hugely challenging Brexit negotiations."

Meantime, the dollar was mostly lower on key pairs, retreating versus the euro, aussie, kiwi, rand and yen, but fashioning a minor rise on the loonie.

"The lingering impacts of last week's 'dovish hike' can still be seen on the greenback, which remains on the back foot," said Otunuga.

"Investors may pay extra attention to the string of speeches from Fed officials this week which could offer further clarity on interest rate hike timings this year," he added, suggesting a "hawkish surprise" could sent the dollar-spot index back towards $101.00.

"From a technical standpoint, the dollar index remains heavily pressured on the daily charts. The 100.00 psychological support remains a key level which could protect the bulls or assist the bears."

More news

15:21 Exova confirms discussions with potential suitors

Exova Group, noting recent market speculation, confirmed on Monday it received proposals from Element Materials Technology, Jacobs Holding and PAI Partners SAS regarding a possible cash offer for the company.

15:16 Rural and small businesses still suffering bad broadband

A large number of businesses remained without a reliable broadband connection, a new survey said on Monday, despite many respondents saying a fully-functional connection was “extremely important” to their operations.

14:56 FTSE 100 movers: Randgold, Fresnillo shine; Babcock slumps

London's FTSE 100 was down 1% to 7,260.60 in afternoon trade, while the pound rallied against the dollar amid doubts about Donald Trump's ability to deliver on his fiscal stimulus pledges.

14:53 IMImobile to buy multi-channel messaging app provider Infracast

IMImobile has agreed to buy multi-channel messaging applications provider Infracast for an initial consideration of £8.2m in cash and shares.

14:45 May to stress importance of union in meeting with Sturgeon

Prime Minister Theresa May was to meet Scotland First Minister Nicola Sturgeon and press the case for the four nations of the United Kingdom staying together.

12:49 Trading Emissions narrows loss under threat of Polish regulation

Closed-ended investment company that specialises in renewable energy projects and emissions instruments, Trading Emissions, announced its results for the six month period to 31 December on Monday.

12:38 Path Investments to float on London Stock Exchange on Thursday

Path Investments is to float on the London Stock Exchange on 30 March as the energy investor bids to capitalise on the downturn in the price of oil.

12:38 Strategic Equity shareholders request general meeting

Strategic Equity Capital noted a press comment over the weekend on Monday, and confirmed that it received a request to requisition a general meeting from two of its shareholders, Ian Armitage and Growth Financial Services - a subsidiary of Harwood Capital Management - representing 5.02% of the company’s issued share capital.

12:32 Hurricane Energy claims UK's 'largest' undeveloped offshore oil discovery

Hurricane Energy reported an oil discovery from exploratory drilling near to the Lancaster field, which the company believes is part of the largest undeveloped discovery on the UK continental shelf.

12:30 NMBZ revenue and earnings fall as it broadens product offer

Zimbabwe-based commercial bank NMBZ Holdings posted its audited consolidated results for the year to 31 December on Monday, with total income falling to $51.5m from $59.4m.