Today Britain will make history by invoking Article 50 of the Lisbon Treaty, a move that bring about great uncertainty for the UK and EU. No country has ever left the EU since its creation, and markets have little knowledge of what’s yet to unravel.
Sterling exchange rates have been on a rollercoaster since the Asian markets opened last night, dipping into the mid 1.14’s at midnight, before recovering to the lower end of 1.15 at the time of writing.
Investors are having a hard time gauging the impact of Article 50, on the one hand it does provide a level of certainty for the UK, whilst at the same time increasing the level of uncertainty as we approach the early stages of negotiations.
There’s clearly reasons for the Sterling bulls to be out on display today, the UK economy has fared very well since the vote last June. In fact, the UK economy has to some degree performed better from a weaker Pound, at least in the short term.
A new UK-EU relationship
The letter was signed this morning by the Prime Minister Theresa May, Tim Barrow is expected to hand deliver the letter to Donald Tusk – The President of the European Council later this evening.
Markets now await the delivery of Theresa May’s letter at 12:30, followed by a speech; depending on the tone of the speech this could have a positive impact on Sterling exchange rates.
How will European leaders handle the news? With elections in Europe still at play there is a strong argument that they may take a hard approach to Britain’s decision to avoid a domino effect. Furthermore, negotiations may not take form until after the Summer whilst much of the focus remains on the French and German elections.
GBP/EUR may weaken further in the short term, until it is better known what form negotiations will take, but with at least two years of negotiations to follow this is likely to be a very volatile period for GBP/EUR.