Sterling falls after UK Parliament passes Brexit bill

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14 March 2017

Written by
Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

The Pound slumped during early morning London trading today after the UK Parliament last night waved the way for Prime Minister Theresa May to begin formal exit talks with the European Union.

T
he House of Commons passed the UK Government’s Brexit bill last night. While this allows May to trigger Article 50 by the end of her March 2017 deadline, this may not take place until the final week of the month. When the inevitable does eventually become a reality we could see a knee-jerk sell-off in the UK currency.

Sterling had earlier inched higher off its recent lows to its strongest position against the US Dollar in a week on Monday. This came despite Scottish First Minister Nicola Sturgeon claiming she will formally seek permission for another referendum on Scottish independence.

Sturgeon confirmed on Monday that she would be seeking authority from the UK government to hold a referendum on Scottish independence, in line with Britain’s exit from the European Union. The potential uncertainty of a second vote in two-and-a-half years is clearly a Sterling negative. However, Sturgeon’s suggestion that a vote wouldn’t be held until autumn 2018 at the earliest calmed some concerns that a referendum could take place slightly earlier. Sturgeon will now ask the Scottish Parliament to request a Section 30 order from Westminster next week.

It was a fairly quiet session for the US Dollar with traders in the US gearing up for Wednesday’s Federal Reserve meeting. Last week’s decline in the greenback was seen as nothing more than profit taking ahead of what is expected to be the Fed’s third rate hike in a decade this week. We think further gains for the Dollar remain on the cards and are anticipating an upward revision of the Central Bank’s ‘dot plot’ expectations.

Major currencies in detail

GBP

Sterling fell 0.6% against the US Dollar during London trading this morning after last night’s news out of parliament.

On Monday, the Pound initial fell below 1.22 to the Dollar following Nicola Sturgeon’s comments, although rebounded after she said the vote would take place between autumn of 2018 and spring of 2019. We think Prime Minister Theresa May is unlikely to sanction such a vote while Britain’s EU exit talks are ongoing.

With no economic data out of the UK today, Sterling will largely be driven by political news. The labour report on Wednesday morning will be the main data release in the UK this week. The Bank of England’s MPC will also be meeting on Thursday.

EUR

The single currency fell 0.3% yesterday as traders awaited significant announcements later in the week.

Chief of those announcements in Europe will be the Dutch election on Wednesday. Far-right anti-EU PVV leader Geert Wilders has lost his slender lead in the polls with just days to go before the final vote. The latest poll from Peil.nl showed that Mark Rutte’s VVD Party had overtaken the PVV at 24 seats to 22. While Wilders is unlikely to make it into office, given opposition parties have pledged not to form a coalition government with his party, a strong showing for the PVV could prove a Euro negative this week.

This morning’s industrial production numbers are likely to be overlooked in favour of expectations for tomorrow’s Dutch election and FOMC meeting.

USD

Investors were in a fairly cautious mood on Monday, with the US Dollar barely moved against most of its major peers. The Dollar index rose 0.3%.

Economic data will take a backseat this week in favour of news out of the Federal Reserve on Wednesday. Financial markets are continuing to place a 100% implied probability of an interest rate hike. With consensus heavily in favour of a hike, traders will instead be paying close attention to the release of the latest ‘dot plot’, which will give us an idea as to the possible path of future hikes in 2017 and 2018.

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