May sticking to hard Brexit

18 January, 2017

Ashley Finill

Yesterday Theresa May finally addressed the nation on the UK’s decision to leave the EU, bringing clarity on the governments intended Brexit plan. Whilst the 12 point plan was more or less leaked over the weekend the markets still acted accordingly during her speech sending rates into a frenzy. Theresa May was quoted to say the UK “cannot possibly” remain within the European single market, as staying in it would mean “not leaving the EU at all”. She also highlighted that the UK wanted to continue to attract the brightest and the best to work or study in Britain, but immigration policy had to be managed properly to serve the national interest. It was expected for Sterling to lose more against the Euro as it has done since the turn of the year, however it was the opposite and the Pound rallied on gaining nearly 2 cents on the Euro and over 2 cents on the Dollar. May also explained that the vote for Brexit will be passed through parliament to vote on the deal before the finalisation of the UK leaving the EU, which is viewed as a more reassuring plan of action. The gains are a much welcomed boost for sterling in what has been a rather dull time for the pound since Brexit had been announced. Yesterdays recovery could be a result of a couple of things, firstly the assurance and a firm plan in the process of Brexit which has now removed most of the uncertainty and more clarification on what lies ahead.

Secondly inflation figures had a big impact on the Sterling boost in the morning. The figure came in at 1.6%, up 0.4% from last month. Rising air fares and food prices helped to push up UK inflation to its highest rate since July 2014 in December. Also the fall of Sterling since Brexit is seen to have a hand in the rising figure. The BoE predicts that inflation could exceed 2.7% this year. Higher inflation provides a boost in the likely hood of the BoE making the decision in the future to raise interest rates which are still at record lows.

Following on from the volatile day on the currency market, it could be again a very busy day with several important data releases. The UK kick things off at 9.30am, firstly with the unemployment rate which is expected to rise by 0.1% from last month whilst average earnings is expected to remain at the same figure of 2.6%. At 10am Eurozone inflation is to be announced and is expected to be better than expected, should it be worse expect further woes for the Euro. In the afternoon we go stateside with the US also releasing inflation figures, it is predicted that inflation will be higher than last month. Finally going north to Canada as the BoC announce their interest rate decision which is expected unchanged.

On side note away from data releases PMQ’s are to take place this afternoon at 12pm. Opposition leaders have already made it clear that they’re unhappy with Theresa Mays plans for Brexit so expect the prime minister to pushed for answers when she appears in the commons which could create a stir in the currency markets.

With a really busy day on the markets keep in contact with your account manger here at Currency Index to keep up to date with the rates so you don’t miss out.