Theresa May just stated that Article 50 is going to be activated on Wednesday, March 29, 2017. The belief amongst a lot of people is that the Sterling’s value will fall immediately after invocation. However, I do not believe that that’s true. The market generally moves on rumors and facts. In my opinion, the invocation of Article 50 has already been factored into the current levels. Since we already know that Article 50 is about to be triggered and we already have a date, then it won’t come as a shock when it happens.
While the market reacts quite badly to uncertainty the activation of Article 50 adds some certainty to the future of UK’s economy. This, I expect, could lead to the pound rallying, but I wouldn’t expect significant gains that fast. Trade negotiations will be laborious and slow, but as things become more apparent, the Sterling should strengthen. I wouldn’t expect huge gains all at once, but slow, steady improvements.
According to Morgan Stanley analysts, the pound is currently the world’s most undervalued currency and should return to pre-Brexit levels.
Big swings will no doubt be there during trading on the day Article 50 is invoked. Some so many investors are holding on to seven figure sums just waiting in the hope of positive movements once Article 50 is activated. With all the substantial trades that are going through, you should expect high volatility levels on the exchange.
If I were a Euro seller, I would definitely have considered taking advantage of the current levels. With bad loans, Italian banks are currently experiencing (to the tune of €360bn), the Greek debt, and three general elections with the European Bloc, I anticipate the Euro having a rough year. Uncertainty in political arenas is known to weaken a nation’s currency, and with distinct possibilities that a different party could power in both German and French elections, there are very high chances a referendum will take place. We’ve already seen the effect that this can have on the value of any currency.