FX Focus: Pound takes Article 50 in its stride and holds steady

FX Focus: Pound takes Article 50 in its stride and holds steady

High up on investors' radars is how long the negotiations for a new arrangement between Britain and the European Union could take, with some fearing they could go on for longer than the two-year stipulated period. Investors would need to see a more detailed timeline of the negotiations.

Commodity currencies including the kiwi, Australian and Canadian dollars benefited from higher prices for raw materials with the Thompson Reuters/Core Commodity CRB index up 0.6 per cent and Brent crude oil prices gaining 1.9 per cent to US$52.32 a barrel as figures showed United States stocks were smaller than expected.

The pound was also up against the euro by 0.3% to €1.15713.

"Article 50 could reintroduce [the "Hard-Brexit discount"] by making Brexit a reality and perhaps triggering a surge in media and market speculation over the final outcome of the negotiations", said Jonathan Loynes, chief economist for London-based Capital Economics.

The Euro could reclaim lost ground against the Pound and Euro on Thursday when Eurozone confidence stats for March come out; these are predicted to improve in all fields bar industrial sentiment.

While there may not be a significant impact right away, it will be the EU's response in the coming days that will be more telling about the future of the pound.

"With actual negotiations with the European Union not starting ahead of May/June, and as the BoE continues to link its policy stance to long-term uncertainty, we believe rate expectations and the pound will remain capped", Credit Agricole strategists wrote in a note to clients.

"When changing your sterling, always shop around for the best rate".

Indeed, many analysts expect the euro to be strong over coming months if the eurozone economy continues to improve and forces the European Central Bank to focus on winding down its quantitative easing and programme.

Brent Crude rose 15 cents to $51.48 in early trading as the Organisation of the Petroleum Exporting Countries (OPEC) suggested it could extend output cuts to the end of the year.

But now sterling trades against the euro may return to the pattern set by previous periods of divergence - one largely determined by factors in continental Europe. When European growth lagged behind the United Kingdom and the USA, sterling again strengthened against the euro, even though it fell against the dollar.

"Sterling could be in store for a very rocky rollercoaster ride moving forward as the Brexit talks officially get under way", he said.

However it's likely that sterling will remain volatile against the world's major currencies.



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