How Will the British Pound React to Article 50?

Posted by Allison on 7 April 2017, 16:08

At the time of writing, Britain is just one day into the two-year ‘divorce’ proceedings with the European Union. Prime Minister Theresa May triggered the formal process on 29th March 2017, which means we should officially leave on 29th March 2019. This comes a full nine months after the EU referendum, in which 51.9% of those who voted chose to leave the EU.

Article 50 is part of the Lisbon Treaty, and it was never intended to be triggered by anyone. Thus, we are into unknown and uncharted territory. The pound has slid in value since Britain voted to leave the EU, becoming the first country ever to do so. On 1st June 2016, some 22 days before the EU referendum was due to take place, the British pound stood at 1.2926 against the euro. This dipped to 1.2695 on the Friday immediately before the referendum, before rising in the days leading up to Thursday – referendum day – the following week. Indeed, the markets closed with the pound worth 1.3055 against the euro on the day of voting.

The following day, when the vote for Brexit became clear, the pound had slid to 1.2383. It slid further after that, falling to 1.2099 to close the month. But let’s fast-forward now to the present day. The pound began trading in March this year on 1.1689 – again, lower than we had seen immediately after the vote. The lowest point this month came on 14th March, when it fell to 1.1420 against the euro. The day before Article 50 was triggered, the pound was worth 1.1566, but this rose to close on 1.1576 on the historic day Britain indicated its intention to formally leave the EU.

So, where will things go from here? It is too early to say whether the pound will increase in value against the euro, or whether this was simply a slight change that cannot be taken seriously. However, it is reassuring not to have noted a significant loss. Additionally, the process of negotiating our departure from the EU may well influence the performance of the pound from this day onwards. As such, we can reasonably expect to see some ups and downs throughout the next two years. If, as some suspect, Britain does well after leaving the EU, this will set the stage for vast improvements to be made in the value of the currency. However, if the country struggles, or is perceived to be struggling, we could be facing a very different picture.

We shall be watching closely to see whether the pound does indeed improve, but it is unlikely to be a quick answer. One thing is certain, though – the overall trend over the second part of March 2017 has been on the up. Is this a sign of things to come?

 

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