LONDON – The British pound is unexpectedly rising on Tuesday morning, ahead of Prime Minister Theresa May’s first major speech outlining the kind of Brexit the government will pursue once it triggers Article 50.
In a note circulated to clients on Tuesday, Deutsche Bank’s Oliver Harvey describes the speech as “the most anticipated speech on Brexit since the UK’s referendum to leave the EU last June.”
Sterling tanked over the weekend on initial press reports that it looks like the UK will be undertaking a Hard Brexit — shorthand for taking Britain out of both the European single market and customs union in order to gain full control over EU immigration to the UK.
However, after Downing Street briefed members of the press about the contents of her speech at 11.45 a.m. GMT (6.45 a.m. ET) the pound has climbed a little, gaining additional support from a fall in the dollar after comments from President-elect Donald Trump that the USA’s currency is “too strong.”
“Our companies can’t compete with them [Chinese companies] now because our currency is too strong. And it’s killing us,” Trump told the Wall Street Journal.
As a consequence, sterling is up by around 0.7% on Tuesday, fighting back from a more than 1% fall on Monday. It is trading at $1.2135 just after 8.20 a.m. GMT (3.20 a.m. ET). Here’s the chart:
Sterling’s gains in early morning are also being aided by a slew of short covering — where traders buy the pound to cover their short positions against losses — in the markets. As Accendo Markets’ Mike van Dulken writes in his morning commentary email:
“This is on the premise that the big news is already out there, and surprises limited, following what must be have been a ‘strategic leak’ of the PM’s Brexit blueprint speech today, one which confirms a clean-break from the EU and suggests a roadmap for Brexit does exist. The leak was clearly designed to offer some clarity (hard Brexit), making up for recent criticism of government muddling and designed to counter recent volatility in the UK currency.”
While sterling may be climbing in early trade, market expectations are that once May speaks there could be a significant sell-off in the currency, with government sources reportedly briefing the Sunday Times that a “market correction” is likely.
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