The Devil is in the Detail

Despite a limited reaction to Article 50 on Wednesday the pound did make very strong gains across nearly all of the major currencies yesterday afternoon. Now that Article 50 has finally been invoked after 9 months of deep uncertainty for everybody, the markets will be paying close attention to the official response from the EU. It is well established that the EU seek to quantify and settle the issue of an exit bill from Britain before any future trade deal can be discussed, a figure of €50 billion has been reported.

The British position however is that both elements should be discussed and negotiated in tandem. This was expressly requested in the Article 50 letter on Wednesday.

This is the first major obstacle which will ultimately set the arena in which these negotiations will take place. Both French President Francois Hollande and German Chancellor Angela Merkel have both made clear this week that they are not budging.

European Council President Donald Tusk will this morning be making a hugely important statement outlining the EU’s objectives in the negotiations. The detail in the wording will in my view comprise the key information the markets now require at this early stage.

View our live exchange rates for the latest trends.

Spring statement to take centre stage

Anything official which suggests a tough stance with no room to manoeuvre could set the negotiations off to a bad start and in my view this would be negative for sterling in the short term. Expect major potential volatility after the statement.

Article 50 has now been invoked but the uncertainty over Brexit will almost certainly continue for some time yet, the process has only just begun. Those clients with a pending requirement would be wise to consider taking the risk out of the volatile currency markets as anything could happen in this negotiation.

Looking forward, the EU27 will meet together on April 29th to discuss the position to be taken with Britain. The negotiations may then take another month before starting which takes us to some point in June before things really get off the ground leaving a window of further uncertainty.

GBP ahead of GDP

The pound is likely to see a volatile end to the week with official UK Gross Domestic Product (GDP) figures for the fourth quarter released this morning at 09:30. Expectation is for GDP to have held steady at 0.7% on the quarter. GDP has proved incredibly resilient over the last nine months and anything steady or remotely positive today should only help support the pound further.

This morning’s GDP data could provide Sterling exchange rates with a further boost, so please get in touch with us on 01494 725 353 to make the most of current rates ahead of Brexit negotiations. Alternatively, you can email me directly at jll@currencies.co.uk if you have any questions.

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