The Pound rallies after Prime Minister’s Brexit speech
January 18, 2017

The pound sterling recorded its best day on the currency markets for nearly 20 years as the City of London reacted well to Theresa May’s speech. Most of the improvement came as a recovery from sharp falls in sterling earlier in the week, when the Prime Minister’s tough stance on Brexit had caused some dismay amongst financial analysts. A ‘hard Brexit’ was regarded as damaging to the economy because it would make business less competitive by shutting off access to continental markets and pushing up inflation, therefore giving consumers less money to spend. Dealers in particular were buoyed by two aspects of the Prime Minister’s speech: firstly, they thought that the promise to put any eventual deal before parliament suggested that the eventual Brexit would be less hard than feared; and secondly, indications that transitional arrangements might be put in place to ease Britain’s passage out of Europe could mean the eventual disruption would be less severe than feared. One of the biggest surges in the pound came, therefore, when Mrs. May announced the parliamentary vote. Many financial analysts cautioned against reading too much into yesterday’s rally – the pound can expect a difficult ride as Brexit nears and more details become known, and further collapses are likely on developments regarded as negative by the markets. Philip Shaw, economist at Investec, noted: “It was as much the prime minister’s conciliatory tone as well as the content of her speech that supported the pound.”

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