As Theresa May starts the two-year countdown to Brexit by triggering Article 50, the FT's currencies correspondent Roger Blitz and markets editor Michael Mackenzie talk to Katie Martin about how the move will affect the British pound.
Produced by Petros Gioumpasis. Filmed by Nicola Stansfield.
Sterling today started off looking a bit soggy, then it kind of picked up. And it's wobbled around, but it hasn't really done anything. Why hasn't it really done anything?
Because we knew about the event. We could see it coming. The key thing that the market really wants to see and what might affect sterling is how the European Union responds. And while we will, in the next 48 hours, get something from the commission in terms of draft negotiation guidelines, it's not until the EU summit on April 29-- and effectively after that, once we get past the French elections-- that negotiations really begin and the process is one that the market can follow.
The UK wants to agree concurrently the terms of the divorce and what happens next, whereas the EU is saying, no, no no, no. You determine the terms on which you exit and then we'll talk about the deal that comes after that.
Yeah. The audience that I think we should be watching in the next few days and weeks is actually the Tory party and the extent to which the Tory party believe that what she has said in her speech, her conciliatory tone, her view-- which is a shift that we cannot, as Boris Johnson suggested, have our cake and eat it. And there will be consequences for the UK economy. The response of the Tory euroskeptics, the backbenchers, will be quite interesting. We may now be reverting to that period whereby the Tory party starts to fight amongst themselves about how Theresa May should negotiate, and that will create renewed market uncertainty.
Yeah. Mike, just coming back to sterling, it obviously got hammered last June when the vote came through. And it's more or less stayed there, right? We're currently at about 1.25 to the dollar.
1.24. I mean, the trade occurred in the first opening hours, once Sunderland voted. That's when the-- that's when we were at 1.50, and we just kept coming down. We're beginning to get to the point now where I think things are going to get very interesting. Because Japan starts a new financial year next week, and I think one of the things we need to watch here is, as the Brexit divorce negotiations start to unfold, are Japanese investors or Japanese companies going to commit to the UK?
And I think in a currency market, there's a sense, as Roger says, we've had this phony war. We had the big eruption of volatility. After the Brexit result came through, sterling collapsed. It lost 20%. We've been sitting here ever since, aside from the little mini flash crash we had late last year, because people are sort of waiting to see, what are companies going to do? Do they still want to invest in Britain? Are there still-- are Japanese carmakers still going to commit to staying in Britain? We don't know.
So I think sterling is probably going to stay in this kind of range for some time. And any sort of adverse headlines, any kind of friction that we see between the two camps over the divorce proceedings is only going to rattle our sentiment further. Because at the back of everyone's mind here is, why would I buy the pound if, indeed, foreign companies say, actually, we're not going to commit to staying in the UK? Fundamentally, that means sterling, over time, becomes a weaker currency.