The battle over Brexit rages in Parliament – but the fight over the future of the UK’s relationship has also resulted in turbulence for the markets.
The Pound jumped to $1.3290 after late night talks in Strasbourg on Monday night brought the prospect of success for Theresa May’s withdrawal agreement – and Sterling also reached a 22-month high against the euro of €1.1780.
However, Attorney General Geoffrey Cox’s advice the next day – that the UK might not be able to exit the Irish backstop – saw the pound then fall from €1.17 to €1.15 against the euro and from $1.32 to $1.30 against the dollar as it dawned on investors that May’s deal was set for another resounding defeat.
In the medium term, the strength of the Pound and FTSE 100 have both suffered from the stalled progress over Brexit – as the economy felt the impact of two years of uncertainty over the future relationship with Europe.
A guide from DailyFX demonstrates what has happened to the value of the Pound and Euro since 2016’s referendum – as well as the impact on the FTSE 100 and bond markets.
The guide shows the facts – free from the political arguments that still rumble on both sides of the debate – in a bid to show the real impact Brexit has had so far.
DailyFX’s interactive timeline includes the following:
- GBPUSD traded in a 13.5% weekly range and the FTSE 100 traded in a 12.7% weekly range in the immediate fallout to the referendum vote – with the Pound suffering dramatic falls before the end of the year
- Theresa May’s failed snap election saw the FTSE 100 fall 3.64% in a week. GBPUSD trades in a 3.12% weekly range (low to high) at the same time. However, a general upward trend as markets sees the election as a sign of a softer Brexit.
- In December 2017, GBPUSD rallies 7.85% over six weeks after the EU agreed ‘sufficient progress’ had been made to move onto the second phase of the talks.
- In March 2018, the EU27 and UK agreed to a transition period. After this GBPUSD hit a 22-month high of 1.43768 on April 16 before losing 9.87% over the next two months when negotiations stalled. The FTSE 100 rallied 15.53% over the next two months, hitting an all-time high of 7,903.
- The bond market, FTSE 100 and GBPUSD fell after the October 2018 summit, in which no agreement was reached between both parties.
Whatever happens next, it seems certain that there are more twists and turns to come.
Capital Economics chief UK economist Paul Dales feels a General Election might have to be priced into the equation. He said: “We wouldn’t rule out unscheduled developments too. It’s possible that something could force May to resign and/or the Labour Party could try to trigger a general election.”
DailyFX analyst Martin Essex said that an extension to the Article 50 process – extending the March 29th deadline – could reduce volatility. He added: “Directional trades in GBPUSD and the Sterling crosses remain problematic and the Brexit turmoil will still likely deter traders from going long riskier assets more generally.
“However, GBP bulls could take comfort from the increasing prospect of Parliament wresting control from the Government, with a snap general election and a second referendum both still possible, albeit unlikely for now. The EU has said there will be no further negotiations on a deal.