The phoney war is over. The triggering of Article 50 begins the long, hard process of extricating the UK from more than four decades of EU legislation.


Sterling - the chief bellwether in the markets – has come off recent highs and is trading at its weakest in over a week against the US dollar. As markets opened in London cable was holding below $1.24, decidedly on the back foot as we await the triggering of Article 50.

We’re now in for a long period of volatility for the pound and UK assets as the government embarks on protracted and hugely challenging Brexit negotiations. Sterling will be incredibly sensitive to negotiations and will offer a clear gauge of how things are panning out. Markets are only a gauge though – they’re not always that great at pricing in the kind of political risk associated with Brexit.

The big question now is whether Brexit has been fully factored in. A truly hard Brexit has not been priced into sterling. We could see it move lower still if negotiations take a sour turn.

The old hard v soft Brexit debate is rearing its head again. Sterling will rise on any indications of a softer Brexit and fall on any signs it’s going to be hard. If we head towards a cliff-edge then it could collapse.

We are likely to see a lot of toing and froing between the various Brexit scenarios. Theresa May has set the UK on course for a hard Brexit – no deal is better than a bad deal – but we can expect this to shift in due course once the EU sets out its stall.

This was always the starting point for bargaining. There are already signs of a softening in the government’s stance around things like the exit bill demanded by the EU and the role of the European Court of Justice.

It’s going to be a fine line for May to tread as she’s in hock to the hard Brexit camp in the Conservatives. She also doesn’t want to be seen to cave into demands from Scottish nationalists for a softer exit. All this points to sustained risk for sterling – if an acceptable deal isn’t done in time then the UK crashes out of the bloc on WTO terms and all the tariffs that entails. 

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