Sterling drops as May signals UK heading for ‘hard Brexit’

Talk of ‘hard Brexit’ leads to a decline in the pound as European shares edge lower

British Prime Minister Theresa May says it was wrong to say she was talking about a 'hard Brexit', after the pound fell to two-month lows following her first televised interview of 2017. Video: Reuters

 

Sterling dropped to a two-month low against the euro as UK prime minister Theresa May signalled that Britain is heading for a so-called “hard Brexit”, saying she is not interested in keeping “bits” of European Union membership.

The UK currency fell more than 1.4 per cent against the euro, to just below 0.87p, the lowest since November, having ranged between 0.76p and 0.91p since the Brexit referendum in June.

The UK currency’s rate declined by 1 per cent against the dollar to levels not seen since October, at $1.2162.

On Sunday, Ms May said the UK government was “working to get the best possible deal” for the UK on the issue of trade. But she stressed the importance that will be given to gaining full control over immigration during negotiations with Brussels.

“Sterling was not helped by Brexit-related headlines in relation to the difficulties that lie ahead for the UK in its EU-exit negotiations,” said AIB economist John Fahy.

As Ms May’s self-imposed March 31st deadline for triggering Brexit approaches, Irish exporters and the wider markets are following her every word for signals of the shape the break-up will take. Pressed during a Sky News interview over the weekend on the issue of single-market membership, Ms May said some people had suggested the UK could “keep bits” of EU membership as it looks to leave.

But she appeared to shut down that possibility as she said: “We are leaving. We are coming out. We are not going to be a member of the EU any longer.”

The pound has dropped about 19 per cent against the dollar and 12 per cent against the euro since the June 23rd vote last year as traders expect the British economy to be significantly weaker once it quits the European Union.

Meanwhile, the FTSE 100, dominated by exporters with large revenues in dollars and euro, closed 0.4 per cent higher to 7,237.77 points, albeit six points off an all-time high reached earlier in the session.

The Iseq dropped 0.3 per cent in Dublin to 6,574.49, with housebuilder Abbey, which generates most of its earnings in Britain, falling 4.7 per cent to lead declining stocks in the Irish market.

Banking shares were also out of favour, with Permanent TSB falling 3 per cent and Bank of Ireland dropping almost 2 per cent.

The pan-European Stoxx 600 index declined by 0.5 per cent.

Ms May also used the Sky News interview to dismiss criticism from Britain’s former EU ambassador Ivan Rogers that her government’s thinking on Brexit was “muddled”, but she ignored growing calls from business leaders, lawmakers and the parliamentary opposition to provide more details of her exit strategy.

“The market just takes the most negative view. It assumes that because May is keeping her cards as close as possible to her chest, there is no plan for Brexit and that we’re going to ‘hard Brexit’ out of the EU,” said BMO Capital Markets currency strategist Stephen Gallo.

- Additional reporting: Reuters