How the pound will fare after Article 50
The FT’s Roger Blitz examines prospects for the pound once the prime minister initiates the process for the UK to leave the EU.
What will happen to the pound now that Theresa May is poised to trigger Article 50, which begins the two-year countdown to Britain's exit from the European Union? Sterling had been pretty resilient in recent weeks, thanks to economic strength and a more coherent Brexit message from the prime minister. But that appears to be over. Economic data appears to be starting to turn sour, and investors are again worrying about Brexit as the politics of Scottish independence and the likely hard line negotiation position of the EU come on to their radar.
Article 50 is set for the last week of March. The moment itself should have only a modest impact on sterling. It is, after all, so well-telegraphed. More significant may be the EU's response in the days after the announcement.
In the medium-term, sterling may yet bounce because many investors consider it to be cheap. The UK economy is still forecasted to grow by 2% this year. But there are many moving parts to the pound-- the impact of sterling's decline on businesses, the risk of Brexit on inward investment, Mrs. May's relationship with other EU leaders, the French presidential election, and likely US rate rises. Longer term, Brexit negotiations will clearly be key to sterling's path, which is why analysts find it difficult to predict its direction with much confidence.
But bullish sterling opinion is hard to find. There is a case to be made for a strong dollar and a more buoyant euro towards the second half of the year, but the best that could be said for sterling is that it might see out to 2017 holding its current value. Expect a rocky ride for the pound.
Produced by Alessia Giustiniano. Filmed by Rod Fitzgerald.