Brexit speech

The tone of the speech suggested by the splash in the Sunday papers and the sudden drop in the pound yesterday did not suggest that we would then see the strongest gain for the currency versus the USD since October 2008. Yet that is exactly what we have seen. The major development from today is that Parliament will get full oversight of a deal and a chance to vote on it as well. In addition, the PM struck a conciliatory tone that will have calmed many who feared that the UK was about to embark on an acrimonious divorce; whether that tone is matched by the EU remains to be seen, and the PM was careful to stress that the UK would not roll over and surrender meekly in any negotiation.

Currency movements seem to be the driving force behind markets now, seemingly more than ever, and this is why we have seen the FTSE’s losses increase even as the pound rallies. This is partially a dollar strength story on the back of Trump’s comments about the dollar being too strong, plus those robust UK CPI figures, but the signs that the UK is looking for a ‘meaningful relationship’ with Europe that preserves (as much as possible) what has been achieved over 40 years of membership should mean that more gains are on the way. Against the euro there looks to be further strength as well, with EURGBP turning lower. It is entirely plausible to argue that the pound’s declines have ceased for
now, particularly if the wage figures tomorrow (released along with the unemployment report) are better than expected.

With the speech out of the way, and the Article 50 deadline still a few weeks off, it is likely that Brexit will drop off the radar for the time being. Instead, US earnings season and the new administration will take precedence. We can expect Brexit to rumble along in the background for a while now, and come back to the fore in March for a time. The PM seems to have achieved her goal of setting out a plan without giving too much away, and markets, for now, appear happy to give her their backing.