Pound tumbles ahead of Article 50 Brexit trigger

Yuan retreats after PBOC cuts the daily fixing rate

PUBLISHED : Wednesday, 29 March, 2017, 12:24pm
UPDATED : Wednesday, 29 March, 2017, 12:24pm

The British pound dropped sharply against the US dollar Wednesday morning, after Scottish lawmakers voted to request a second UK independence referendum.

Investors are waiting for the UK government to trigger Article 50 later in the day, which will kick off negotiations on the country’s exit from the European Union after 44 years of membership.

The pound declined 0.3 per cent to US$1.241 at 11.20am, down from US$1.245 late on Tuesday.

UK Prime Minister Theresa May will send a letter to officials in Brussels later today, invoking Article 50 of the Lisbon Treaty and beginning the formal process of withdrawal from the EU.

Any suggestions that the UK might not actually leave the EU disappeared months ago
Jonathan Loynes, chief economist, Capital Economics

“Article 50 could reintroduce [the ‘Hard-Brexit discount’] by making Brexit a reality and perhaps triggering a surge in media and market speculation over the final outcome of the negotiations,” said Jonathan Loynes, chief economist for London-based Capital Economics.

However, he said Brexit worries may be short-lived, as the news had been long expected by the markets.

“Any suggestions that the UK might not actually leave the EU disappeared months ago. And the 52 per cent of referendum voters who wanted Brexit will presumably be pleased to see the process finally commence,” said Loynes.

“If the UK government’s letter announcing Article 50 contains conciliatory language, and this is echoed in the response from the EU, then hard Brexit worries could certainly dissipate somewhat further.”

The euro edged up against the US dollar, climbing 0.03 per cent to US$1.0817.

In other foreign exchange trading, the onshore Chinese yuan retreated 0.2 per cent to 6.8917 per US dollar as of 11.20am, versus 6.8795 late on Tuesday. The offshore rate dropped slightly to 6.8746 from 6.8737 in the prior session.

Earlier, the People’s Bank of China lowered the yuan’s mid-point rate against the greenback for a second straight day, setting it at 6.8915, down 133 basis points from the previous day’s 6.8782.

The US currency was fractionally higher against its major peers, with the ICE US Dollar Index up 0.01 per cent to 99.72.

Against the Japanese yen, the greenback rose 0.1 per cent to ¥111.25 from ¥111.15 in the previous session.