British pound is at its weakest in more than 3 decades as Theresa May plans to start the formal process of divorcing the UK from the EU already by the end of March, causing panic among the UK-based financials.
In her first formal speech about Brexit, Theresa May has indicated that she sees the UK as a "fully independent" country, implying the total separation from the EU market. Even though the Prime Minister has not spoken directly of the UK's destiny in the European single market and mostly emphasized the plans for controlling the immigration, the analysts say that the EU officials will be unlikely to accept the UK's plans for significantly limiting immigration and neglecting the decisions of the EU Court of Justice, reports the Financial Times.
Some experts claim that May seems to be ready to sacrifice the established economical relationships between the UK and the EU for taking hold of the immigration issues. The market is concerned that the financial sector will not get any "special treatment" from May in negotiations even though the industry accounts for about an eighth of the country's GDP and employs over 1 million people.
“This marks the first stage in the UK becoming a sovereign and independent country once again. It will return power and authority to the elected institutions of our country. It means that the authority of EU law in Britain will end,” said the Prime Minister.
PM May's declaration brings welcome clarity on start of Brexit talks. Once Art. 50's triggered, EU27 will engage to safeguard its interests
— Donald Tusk (@eucopresident) October 2, 2016
Following May's speech, British pound has slid to its lowest levels in the last 3 decades to $1.27 per one British pound. This is the currency's weakest value since 1985, reports Reuters. In addition to that, the pound's weak state has been only further aggravated by the increasingly strong dollar the last days. Since the day of the Brexit vote, the pound has plunged from $1.50 to today's lowest levels.
"The Prime Minister has confirmed that the formal process of the UK's exit from the EU will begin by the end of the first quarter of 2017 with the triggering of Article 50. As happened in the case of the referendum itself, the transformation of anticipated risk events from a high probability to a certainty, and from an unknown date to a confirmed one, can be a powerful catalyst for currency weakness," said John Wraith, UBS' strategist, as reported by the Telegraph.
The analysts agree that not only the speech of Theresa May has affected the pound's stability in such a devastating way but also the fact of "uncertainty" that comes together with a "hard Brexit" tactics. The growing uncertainty about the consequences of the Article 50 for the UK as a country is driving the currency's recent volatility. Some analysts go as far as to predict the pound to plunge even further as the Brexit talks continue.
$GBPUSD new 35yr low below 1.28. Downside driven by 'Hard Brexit' risk increasing. 1.25 next, 1.20 by year end. Politics ‘trumps’ economics pic.twitter.com/VkOmInNsYP
— Piers Curran (@pierscurran) October 4, 2016
In turn, British FTSE 100 is enjoying near record-high levels today. In the morning, the blue chip has gone through the 7,100 point and is only expected to grow further as it gains from the pound's weakness. The Telegraph's analysts say that this is a very rare occasion as FTSE 100 has reached this level only 7 times throughout its 8,300+ days history. At the moment, this blue chip is just 22 points away from its all-time record value.
"So far this year the FTSE 100 has been lifted by rising commodity prices, a weakening pound and looser monetary policy," a Senior Analyst Laith Khalaf told the Telegraph.
However, investors shouldn't be too happy about FTSE's rally as its success mostly comes from the pound's weakness and foreign investors playing on the uncertainty in the UK's economy.