Sterling drops as UK gets closer to Brexit date

Sterling dropped the most in two weeks as UK Prime Minister Theresa May appeared to be leaning toward the first part of 2017 as the best moment to trigger the start of formal talks over the UK’s withdrawal from the EU.

Sterling fell against 13 of its 16 major peers, paring a weekly advance against the dollar.

While reports in the UK media recently suggested May could wait until the end of 2017 before opening two years of negotiations through triggering Article 50, she is sympathetic to the case for acting by April at the latest as Germany and France prepare for elections and pro-Brexit campaigners at home warn against delay, said the official sources.

“There appears to be some knee-jerk selling,” said Lee Hardman, a foreign-exchange strategist in London at Bank of Tokyo-Mitsubishi.

“The market view is probably that it being triggered sooner may make a harder Brexit more likely. You could argue alternatively that receiving clarity over UK’s future relationship sooner would be a positive development.”

Sterling depreciated 0.6% to 86.71 pence against the euro, having reached 87.25 pence earlier in the week, the weakest level in three years.

The pound fell 0.8% to $1.3063 in late London trade, the steepest decline since early August. It had dropped to a 31-year low of $1.27 in early July.

The report tempered a week that saw sterling recover against the US currency.

It still posted a weekly gain after reports showed July inflation, retail sales and jobless claims beat analysts’ forecasts, suggesting a more optimistic picture of the post-Brexit economy for the UK.

Sterling has dropped more than 12% against the dollar since the UK referendum on June 23.

The pound had its worst-ever day against the US currency when the result became clear a day later, while losses deepened after the Bank of England’s decision this month to cut interest rates by a quarter-point and boost its stimulus plan.

The Bank of England will draw some comfort from signs that the UK economy weathered the initial shock of the Brexit vote. However, its concern that prompted its huge stimulus plan is unlikely to have lessened.

The first official data covering the post-referendum period, published during the week, had shown no immediate big hit to the UK economy as retail sales surged in July and claims for unemployment benefits fell.

But for the Bank of England’s policymakers who surprised investors with a “sledgehammer” stimulus plan this month, the early readings of the economy offer only a narrow snapshot compared with the years of economic uncertainty they see facing the UK as it reworks its relationship with its main trading partners in the EU.

“(The) retail sales data tell us next to nothing about the health of the UK economy after the Brexit vote,” Andrew Brigden, chief economist at Fathom Consulting, said.

By contrast, Tuesday’s inflation data offered a sign of the challenge to come for Britain’s consumers who drove the country’s economic recovery over the past three years.

Price pressures in factories - which eventually feed through into consumer prices - shot higher in July, reflecting the pound’s plunge since the Brexit vote.

“This is likely to limit retail sales growth in coming quarters,” said ING economist James Knightley.


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