Pound Traders Eye Brexit Talks to Shock It Out of Euro Doldrums

Pound Traders Eye Brexit Talks to Shock It Out of Euro Doldrums

18 June 2017, 21:30
Roman Vashchilin

The formal start of Brexit negotiations on Monday may prove more of a catalyst for the pound than an inconclusive general election, a surprisehawki shshift by Bank of England officials and a spate of disappointing economic data.

Despite the raft of surprises to hit sterling this month, it’s set to record its tightest monthly range versus the euro since 2014. That may change as, almost one year since Britain voted to leave the European Union, U.K. Brexit Secretary David Davis and his European counterpart Michel Barnier open negotiations.

The two sides will hammer out how talks will be structured, whether there would be a transitional phase to help businesses to re-adjust to new rules and what the divorce would mean for rights of EU citizens living in the U.K. and Britons living on the continent.

In all of this, it’s the “tone” that interests Richard Falkenhall, senior strategist at SEB AB in Stockholm. He’s particularly keen to see how the two sides settle the contentious issue of the Brexit bill.

“The tone of the negotiations, whether they turn out to be constructive or the other way around, that may be very, very important,” SEB’s Falkenhall said. “One of the things they will start to discuss now is how much the U.K. will have to pay to the EU, that will be very crucial. If they reach a solution or get closer to each other on this, then I think it’s a very, very positive sign.”

Tumultuous Time

The pound’s relative resilience to an otherwise tumultuous time in British history is in contrast with its swings in 2016. That year saw its biggest daily drop on record in the aftermath of the U.K.’s shock vote to quit the EU and a mysterious flash crash in October.

Sterling has traded in a range of 2.141 pence against the euro this month, the lowest since August 2014. The pound was at 87.52 pence per euro as of 3:40 p.m. in London Friday.

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