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Reports of £50bn EU bill weakens pound

29th March 2017 Market Update

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?? GBP – With the UK on the cusp of initiating Article 50 this morning, markets remained calm throughout the day as traders showed no signs of nervousness ahead of Brexit’s formal launch.

Although this marks the official two-year process for our withdrawal and establishment of new legal grounds, the market seemed more concerned by what the negotiations themselves will entail. With today’s triggering only being symbolic, Sterling’s direction can only be revealed in the coming months.

Of course the main concern investors have is that a ‘hard’ Brexit will mean one in which the UK loses access to its largest trading partner, which could damage an already unstable UK economy. The worry is increasing as both Theresa May and the EU leaders are taking such bold stances.

In other areas, strong UK inflation and signals from the Bank of England raising interest rates have helped Sterling along these past two weeks, however the uncertainty around the terms for Brexit continues to weigh on the pound as we are still down around 20% against the dollar since our vote to leave.

Two key dates to look out for will be the 4th April, when the EU is expected to respond to the triggering of Article 50 and the 29th April, when the first EU Brexit summit is set to take place.

?? EUR – The euro is expecting consumer confidence reports and wage inflation readings of relatively low impact, as the main news will be Article 50 and any indications of the negotiation strategy of each side.

?? USD – The dollar was able to consolidate losses from President Trump’s failure to replace Obamacare over the weekend, due to a promises of more interest rate rises from the Federal Reserve. Dallas Fed member Robert Kaplan reported aims to phase in rate rises patiently and gradually to avoid an aggressive jolt which could cause a slow down in the economy.

 

Key Announcements

?? GBP
8:30am – Consumer Credit expected to decrease from £1.4bn to £1.3bn
8:30am – Mortgage Approvals set to decrease by 28,000
n/a – UK Government Triggers Article 50 for Brexit

?? EUR
9:00am – Wage inflation (Italy)
9:00am – Consumer Confidence (France & Italy)

?? USD
2.00pm – Pending Home Sales

 

Our View:Reports of the EU seeking a £50bn divorce bill from the UK has caused the pound to fall marginally in the early hours of this morning as investors are already speculating that this could cause the UK to take a soft stance in negotiations.
 
Although these losses have been erased in early European trading, further movements are expected from any further information about ongoing negotiations. Markets could well take cues from Theresa May’s statement following Prime Minister’s questions.

 

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Darren Kilner

Darren Kilner

Darren is Head of Dealing at FairFX. Darren lives and breaths FX, his Mastermind topics are G8 currencies and economic forecasts.

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