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Pound Lower As UK and EU Divorce Begins

UK PM Will Deliver Letter Triggering Brexit

The Prime Minister of the United Kingdom, Theresa May, will invoke article 50 of the Lisbon treaty on Wednesday, March 29 at 7:00 am EDT (11:00 GMT) by telling the British parliament that she has submitted the signed letter to the European Union. This symbolic exchange will trigger a two-year process that will result in the UK withdrawal from the EU. The PM will face questions from the Commons at that time with a statement expected at 7:30 am EDT (11:30 am GMT). Within 48 hours the EU will circulate a draft of negotiating guidelines to be discussed in late April.

The Brexit referendum on June 23, 2016 kicked off a tidal wave of political instability as British citizens voted to break a long-standing economic and social pact. Opinion polls badly missed the mark, leaving markets in high state of volatility as investors reacted to the shocking result. The pound has depreciated more than 15 percent since the vote as the Bank of England and other institutions have warned of the risks of ending the relationship without a fall back option.

The market has already priced in the first wave of Brexit after the referendum but the length of the process and the different stances (hard vs. soft exit) and the particular timing (French and German elections this year) complicates the valuation of the true impact to the UK economy of the decision to leave the Union. Investors need to follow the developments out the London and the reaction in Europe as this two-year divorce gets under way.

The GBP/USD lost 0.851 percent in the last 24 hours. The pound is trading at 1.2463 ahead of Theresa May invoking article 50 of the Lisbon treaty and effectively triggering the two year Brexit process. The currency is lower as investor anxiety rises despite tomorrow’s proceeding being mostly bureaucratic with little room for surprises.

Former UK PM David Cameron resigned on the aftermath of the Brexit referendum leaving it up to Theresa May to steer the UK into uncertain waters. The European Union has made it clear that they will be tough negotiators with Germany the most vocal with Finance Minister Schauble saying : “We have no interest in punishing the UK, but we also have no interest in putting European integration in danger over the UK,”

The main contributor to volatility in the pound trade will be the negotiations as the Brexit Leave camp made bold promises that are almost impossible to get the EU to agree to. The upcoming French and German elections complicate matters for the UK Brexit negotiating team as the results could reshape the EU into one pushing a tougher endgame for the UK.