Roughly one year after the British referendum, the Brexit negotiations officially start today in Brussels. This will be a long and winding road for the UK government, particularly since the Conservative party lost its majority in the House of Commons. Against this backdrop, we expect EU negotiators to try to take advantage of the situation as Prime Minister Theresa May finds herself in a potentially weak position.
Last week, the pound sterling recovered from the massive sell-off following the loss of the Tory parliamentary majority. On Monday morning, the pound held steady against most of its peers as GBP/USD was treading water below the 1.28 threshold, while EUR/GBP eased to 0.8740.
For now, market participants have remained remarkably constructive on the pound as they prefer to see the glass as half full. However, the level of uncertainty keeps rising and we expect investors will finally realise how complicated those negotiations will become.
By Arnaud Masset