Sterling drops 1% on rumors UK will start Brexit process next spring
Proving that the prospect of the U.K. leaving the European Union can still unnerve markets, the value of the British Pound tumbled more than 1 percent on speculation that the country’s new prime minister would kick start the process next spring.
In late Friday afternoon trading in London, sterling was off 1.04 percent on the day against the U.S. dollar at $1.304. The sharp drop was sparked by media reports that Theresa May, who replaced David Cameron as leader last month, would trigger “Article 50” — the section of the EU’s treaty governing leaving the 28-country block — by April to avoid clashing with crucial elections in France and Germany.
The British currency has been one of the biggest victims of the U.K.’s decision to quit the EU on June 23, falling seven percent against the greenback the day the result was announced. While the initial moves were dramatic, plunging from the highs of $1.50 to a 31-year low of $1.32, the currency continues to remain under pressure at current levels of $1.30. The currency is down nearly 12 percent since the start of the year.
“This will not be the first time we see sharp moves in the currency as we approach the trigger of Article 50, “Ana Thaker, Market Economist at PhillipCapital UK told CNBC via email.
“We can expect sterling to move sporadically with knee-jerk reactions from the market as Brexit plays out.”
While the U.K. has logged some positive data in the weeks following the result — unemployment, production and consumer spending figures for the weeks around the vote coming in better-than-expected — analysts have warned of a delayed adverse reaction to the decision.
“Sterling has been bearing the brunt of market sentiment since Brexit and if we continue to see poor data releases, downside risk on the currency remains strong,” Thaker added.
“Sterling flirted with the $1.28 level on Monday and looks to breach this recent low, targeting $1.25 – if the current data trend prevails.”
Source: Reuters
