Sterling Pares initial losses as UK triggers Brexit Article 50

UK Prime Minister May sent a letter yesterday formally triggering article 50, and starting the clock to two years of negotiations to define the UK’s secession from the EU. The pound initially fell to a day low of 1.2377 before recovering some ground as the Brexit letter was on its way to Brussels, to close at 1.2420.

The letter from PM May was in a conciliatory tone, but made very clear it was in all parties interests to come to an agreement before the 2 years expire. Some EU officials have already stated that there will not be enough time to strike a trade deal before the 2 years are up. In fact, various officials said today that the next two years should be about the terms of the UK’s departure from the EU.

May has already stated her intent in the letter to negotiate both divorce and trade terms together, over the next two years. Adding that under the current scenario safety would be greatly diminished if there were no deal in place at the end of the two-year period. However, there was no mention in the letter of the repeated calls from EU officials for the UK to pay a Brexit bill of approximately £50 billion.

The Pound’s future certainly depends on the deal the UK can seal with the EU over the next two years, but just as important are economic figures. On Friday at 09:30 am, we will get the GDP Growth figures for MoM and YoY, expected to remain unchanged from last month at 0.7% and 2% respectively.

If you feel that Sterling will rise against the US dollar over the next week then all you need to do is buy a Call option, which gives you the right to buy GBPUSD at a set price (strike), set date (expiry) and for an amount of your choice.

The screenshot below shows that a GBPUSD Call option with a 1.24207 strike, 7-day expiry and for £10,000 would cost $67.60, which would also be the maximum risk.

This screenshot shows the profit and loss profile of the above Call option, just click the Scenarios button.

If on the other hand, you feel that Sterling may fall against the US dollar over the next week then all you need to do is buy a Put option, which gives you the right to sell GBPUSD at a set strike, expiry and amount of your choice.

The screenshot below shows that a GBPUSD Put option with a 1.24257 strike, 7-day expiry and for £10,000 would cost $64.29, which would also be the maximum risk.

This screenshot shows the profit and loss profile of the above Put option.