Sterling drops as Theresa May signals ‘hard Brexit’ at Tory conference


The pound was the worst performer among major currencies on Monday, after Prime Minister Theresa May said the UK would kick of the process of separating from the EU in the first quarter of 2017, reports The Independent.

Theresa May has ended weeks of speculation and revealed that she will launch formal Brexit talks with EU leaders before the end of March 2017. The timing means the UK looks set to leave the EU by summer 2019.

The pound was the worst performer among major currencies, down 0.3 per to $1.2938 as of 6:46 am in London. This was the currency’s lowest performance since August 16.

The pound has fallen more than 12 per cent against the dollar since the referendum in June to levels last seen in 1985.

Kathleen Brooks, director of research at City Index, said Theresa May’s speech, which seems to suggest that she is veering towards a ‘hard Brexit’, is likely to come “at the cost” of a period of economic disruption.

This is “likely to be negative for the pound,”  Brooks wrote.

Vishnu Varathan, a senior economist at Mizuho Bank in Singapore, said “we’re back to Brexit talks“.

“Sterling has taken a bit of a knock first. If the concerns become wider concerns about financial market contagion, we will find that the slight softening that we’ve seen in the dollar trend will be shaken off,” he told Bloomberg.

The Bank of England’s Monetary Policy Committee (MPC) decided to keep interest rates unchanged at the historic low of 0.25 per cent in September, in line with analysts’ expectations but the MPC stuck to its view that they could be cut again later in the year.

Expectations for lower interest rates tend to drag on values of currencies.

Experts have warned that London’s position as a financial hub will be dealt a severe blow if the UK left the single market. However, that access is contingent on countries agreeing to let European Union citizens live and work anywhere in the bloc.

But speaking to delegates on Sunday, Theresa May claimed people who talk about a “trade-off” between controlling immigration and trading with Europe are looking at things the “wrong way”.

“I want it [the deal] to give British companies the maximum freedom to trade with and operate in the Single Market – and let European businesses do the same here.

“But let me be clear.  We are not leaving the European Union only to give up control of immigration again. And we are not leaving only to return to the jurisdiction of the European Court of Justice.

The EU is the UK’s biggest trading partner.

“If UK exporters will lose access to [the free-trade zone], the question is how quickly can they negotiate bilateral agreements,” Khoon Goh, head of Asia research at Australia & New Zealand Banking Group in Singapore, told the WSJ.

“That could be quite difficult,” he added.