Sterling Slumps as U.K.'s May Plans to Trigger Brexit Next Week

  • Currency reverses gain on dollar demand as New York comes in
  • Goldman favors selling pound as trade talks seen ‘difficult’

U.K. to Begin Two Years of Brexit Talks on March 29

The pound fell, reversing earlier gains, after the U.K. said it will trigger the process to leave the European Union on March 29.

Sterling dropped 0.23 percent to the day’s low of $1.2367, erasing a previous advance of as much as 0.3 percent. On charts, the first technical support for the currency comes at $1.2324, the low on March 17. A pickup in dollar demand as trading starts in New York is also weighing on the pound, according to a trader in Europe who spoke in condition of anonymity as the person is not authorized to speak publicly.

The British envoy to the EU, Tim Barrow, informed the office of European Council President Donald Tusk this morning of the plan to invoke Article 50 of the Lisbon Treaty, the official trigger for Brexit, Prime Minister Theresa May’s spokesman James Slack told reporters in London on Monday. That would launch two years of complex negotiations that will pit the U.K.’s need for a trade deal against the bloc’s view that Britain shouldn’t benefit from Brexit.

While Morgan Stanley doesn’t expect such a decision to come as a shock for markets and favors buying sterling with a target of $1.2900, Goldman Sachs Group Inc. has a different view.

“We think the imminent activation of Article 50 will trigger difficult trade negotiations, which is not properly priced into the currency,” Michael Cahill, New York-based strategist at Goldman Sachs, wrote in a note to clients. “Short sterling remains one of our favorite views.”

The pound strengthened this morning amid broad dollar weakness and after investors increased bets that the Bank of England will tighten policy as early as next year.

— With assistance by Vassilis Karamanis, and Sejul Gokal

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