The markets have the jitters for Pound Sterling as the Supreme Court hearing draws to an end. Rates remain range bound around the 1.175 mark but have been in constant motion during the early hours of the trading session. If bookmaker odds are anything to go by, William Hill have offered odds of 5/2 that Theresa May will win the appeal to trigger Article 50 alone.
But in a year of prediction blunders including the election results in the US, I wouldn’t count on bookmakers getting it right this time.
That being said, the complexities that surround the UK’s exit are growing. Questions remain as to whether Scotland, Wales or Northern Ireland have a say on Brexit terms, and whilst Parliament are in favour of backing a deadline for Article 50, much of this depends on what Theresa May pulls out of her Brexit strategy hat.
So far, we know that Brexit means Brexit and that it will contain bits of blue, white and a red. Ian Duncan Smith has labelled Labour’s backing of a March Brexit deadline as ‘handing the Tory Government a blank cheque’, allowing them to set Brexit negotiations as they please without any real intervention.
Weak sentiment around the Pound dents Sterling exchange rates
The Pound’s sentiment has weakened since the beginning of the week, falling two and a half cents against the Euro.
It would seem at first glance, that the outcome of the Supreme Court ruling has become trivial, with overwhelming support from the House of Commons for Theresa May to invoke Article 50 in March, the decision expected in January carries less importance.
But in reality, with overwhelming support from Parliament for the UK to retain access to the single market post-Brexit, when push comes to shove, will Parliament back the Tory Government’s interpretation of Brexit?
Some suggest its thwarting the will of the people if the UK opt for anything less than a hard Brexit, but with news that banks are already in the final steps of moving operations into Europe to avoid disruption, protecting the economy and jobs should be at the forefront of any Brexit strategy.
If Theresa May reveals her plans to Parliament, this should not be interpreted as a free ride for Government to force its way out of the single market, and Parliament will have the final say if scuffed plans reveal themselves.
Never the less, the Pound’s future is in the balance and markets are fearful of Brexit interpretations, whilst it remains unlikely that Theresa May will win the right to invoke Article 50 alone, there is still ever possibility that the UK may opt for no access to the single market.
Is now a good time to buy the Euro?
What would this mean for the Pound? A complete removal from the single market will likely result in a loss of significant jobs, with business headquarters moving into central Europe to maintain smooth trading operations. Even for the small business, which makes up 99% of the UK’s economy, the potential for changes with European trading partners will unsettle business decisions. Importing goods into the UK could become increasingly more expensive, and the prospect of further red tape could result in further changes to their business model.
But the UK as a whole relies heavily on the EU with almost 50% of its goods arriving from the bloc, replacing the current framework with free trade agreements will be cumbersome, costly and time consuming. Even if the UK can magically adopt the current framework with other countries, importing goods from China, or South America under a free trade agreement will not be easy, cheap or efficient.
A hard Brexit is therefore likely to increase consumer prices, and with wage growth at stagnant levels this combination could be deadly for the economy. When you factor in these potential concerns markets have every right to be nervous around the Pound’s sentiment, potentially leading to another sharp fall in Sterling’s value in early 2017.
Current levels for GBP/EUR remain attractive compared to the lows witnessed in November, and those holding on for a rally in Sterling’s favour could be waiting some time. For business the prospect of increased prices for consumers is a concern, by pursuing a contract option such as a forward contract, you can lock in current rates of exchange for a period of two years, coincidentally the length of time Brexit negotiations are expected to take.
Current exchange rates
The below table provides GBP/EUR, GBP/USD, GBP/AUD and GBP/CAD exchange rates which are accurate at the time of writing.
|Currency Pair||Current Interbank Exchange Rates|
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