Pound sterling records biggest gains since 2008 following May’s Brexit speech
British Prime Minister Theresa May’s speech on her post-Brexit vision for the UK resulted in the pound rebounding sharply, making its most significant gains in almost a decade.
Ms May’s words were eagerly anticipated, not just by the people of Britain, but those within the European Union. The Prime Minister’s desire to build a more “outward looking” Britain whilst remaining a “best friend” to their European neighbours resulted in the pound moving very favourably against the dollar.
Although the Prime Minister confirmed many people’s worst fears that Brexit would result in the UK leaving the single market, the pound gained strength in the markets after Ms May reiterated that the Government would place its final Brexit deal to a vote in both houses of parliament.
Free Trade Deal
The Prime Minister said in her speech that she hopes the Government will be able to successfully negotiate a free trade deal with all EU members, which would have almost certainly added further weight to the sterling’s initial rally.
Nevertheless, experts predict that the EU may be somewhat less receptive to the idea of a free trade deal, potentially causing “another element of confusion” in the markets, according to Jane Foley, currency strategist, Rabobank. Ms Foley added that “there is likely to be a lot of volatility caused by this debate in the next couple of years”.
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FTSE Moves Lower
A strengthened pound towards the end of January has seen the FTSE 100 tail off somewhat, down 0.5 percent. This is little surprise given that the FTSE 100 is dominated largely by overseas conglomerates who are forced to tighten their belts when the pound is buoyant.
Nevertheless, the sterling’s value has still seen 19 percent wiped off against the dollar since the UK’s decision to leave the EU in last summer’s referendum; despite this month’s late rally, it remains one of the worst-performing global currencies in the last six months.Indeed, who could forget October’s infamous ‘flash crash’ which saw the pound spiral down to a 31-year low within minutes?
Though the Prime Minister clearly does have a strategy to negotiate a clean Brexit, it’s even more likely to cause greater noise and volatility in the markets throughout the coming months.