So, UK PM May recently announced in a pitch-perfect speech full of substance at the Conservative Party Conference last weekend that article 50 will be triggered before the end of March to begin two year negotiations with the EU. Have you been monitoring Sterling since? The trade-weighted pound has fallen to new cyclical lows this week in an initial response ...
However, what is so significant about her speech was not so much the timings of triggering Article 50 to allow for enough time for the economy to adjust ahead of the 2020 elections, but how for the first time since down the track of the Maastricht Treaty, a conservative UK leader has been able to openly talk about controlling their own laws, destiny and being their own independent country - that to me is positive for sterling in the longer run, especially when you have to take into account all that is terrible about the EU and the sinking EZ economy.
Article 50 will be problematic, but of course
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Source: Free Images
Nonetheless, an exit is not going to be plane sailing and Scotland could be a spanner in the works initially no matter how smooth negotiations can reasonably go with the EU. May went onto say that they will publish a Great Repeal Bill to remove EU control over British laws once the deal is done, replacing the European Communities Act of 1972 to effectively end the jurisdiction of the European Court of Justice in the UK.
This is all coming from a PM that owes her place to the leave victory that she only half-heartedly opposed and who recently mocked those politicians that say the referendum isn't valid or who say that they need to have a second vote and to others who say that they don't like the result and that they will challenge any attempt to leave the European union through the courts, "Oh come on?", was her response in a very sardonic tone.
However, at the same time, what is very unclear at the moment is how such negotiations with the EU will go in just two years once Article 50 is triggered, for The Article wasn't there to favour abandoners of the EU. Moreover, while the bill will most likely be passed through the conservative majority House of Commons, it is going to find a much stronger opposition at the House of Lords. You see, the Great Repeal Act will require the approval of the Scottish Parliament and a legislative consent motion will be required. Such legislation to transpose all EU law applying to the UK into domestic law would require the consent of the Scottish Parliament, where the majority of MSPs are against it.
May also mocked those who suggested that there are two options for Brexit, soft and hard, essentially a narrative that the remainers came up with who are still campaigning for Brexit to remain in the EU. "This is nothing but a false dichotomy," exclaimed May. In other words, May wants to make and eat the same cake that Boris was baking for she will not give up Britain's control of immigration again and will not allow for Britain to be full members of the European market.
Of course it will be a hard Brexit - that is what they voted for
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Source: iStock
Such concerns of a hard Brexit have rattled sterling bear's cage. To me this is telling in that there were still many observers in the market on the fence as to whether Britain would really pull out of the EU altogether or, under a soft Brexit, there could have been some form of continued EU membership. Look, Brexit is a conscious decision to reject the laws and regulatory structure under the commission of parliament and European court of justice that those who voted for a Brexit do not want to be controlled by, not that we do not want access to the single market. In fact, the way things stand on the continent, such restrictive legislation could be more damaging for such export nations as Germany with a trade surplus with Britain that could be looking at a 9.3% tariff slapped on to their exports of cars to Britain.
Anyway, the trade-weighted pound has fallen to new cyclical lows despite May's assertiveness and there have been significant moves through key technical support levels that have reinforced the pound's renewed downward momentum to levels not seen in decades. However, I personally do not see the pound in free fall from here.
You think Britain is isolated and has it bad?
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Source: Free Images
We have a European banking crisis on our hands and the making for a break up of the EU, oil on the rebound and bullish optimism over OPEC output agreements and Scotland dare not leave the UK until Oil is significantly higher anyway. China about to implode with an inevitable meltdown of the Chinese Communist Party. U.S. on the brink of war with Russia and China. Also, the U.S. presidential race is on this year and Clinton is apparently taking the lead in the polls, adding some stability into financial markets and potentially exposing the greenback to the downside when markets get back to data and a worsening U.S. economy slipping towards a crisis in 2017.
Made in Britain t-shirts out NOW
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Source: Free Images
It is all relative and a lot of the bad news for the UK economy had already been priced into the pound. While there are very few benchmarks to go by at these new lows, 1.2500 is likely to be a strong level of support ahead of 1.2300 and at such levels, even as they stand now, they have been and will continue to help to boost external competitiveness while contributing to the BoE's easier monetary conditions. Much of the initial fears on the UK economy have definitely not been so terrible, and in fact, many of the UK's indicators are doing great, manufacturing the highest since June 2014 - I want a t-shirt that says "Made in Britain (but living in the Caribbean)!"
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