Hard Brexit on the Cards?

Yesterday the British Prime Minister gave her first major interview of 2017, in which she said “Often people talk in terms as if somehow we are leaving the EU, but we still want to keep bits of membership of the EU,” she said. “We are leaving. We are coming out.” 

It did not surprise me that soon as Tokyo came on line after the Forex market opened for the week last night that the British Pound fell quite heavily. This is because the comments have been widely interpreted to signal that the British government is on course for a “hard Brexit” rather than a “soft Brexit”. This goes to show that when there is a great deal of uncertainty over a policy, as there is here over the terms on which the British government is going to pursue its exit from the European Union, any remarks by a leader that could mean one thing or another are going to be seized upon by speculators.

Shortly after London opened, the GBP/USD currency pair fell to reach a new 2-month low. Ironically, Britain’s major share Index the FTSE 100 also reached a new all-time high. If you find that confusing, consider for a moment that a weaker domestic currency makes share prices stronger – it is not the stocks going up, it is the currency they are valued in going down!

To be fair, the GBP was already falling with some strength on Friday as the week came to an end. However, I have little doubt that May’s interview had the effect of magnifying the downwards movement of the currency, and I find it significant that about two or three hours after London opened she gave a new statement in which she said she “hasn’t ruled anything in or out” ahead of Brexit negotiations.

As Britain moves ever closer towards the day when it formally triggers Article 50, it seems the likely terms of its new relationship with the European Union are still very much up in the air.

British Prime Minister

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