The main themes of 2017 continue to stay at the forefront of investor minds this week and anyone hoping for a let up on recent volatility should look away now. First up this week, and the much anticipated Brexit strategy should become clearer this Tuesday as Theresa May is set to outline her negotiation priorities. If reports out over the weekend are anything to go by then we may be in for a rough two years of negotiations, with Ms. May apparently not willing to budge on immigration controls and freedom of movement. Later in the week we have the impending inauguration of Donald Trump as US President which is set to take place this Friday. We have seen markets here also become somewhat agitated as Trump has failed to deliver a concrete strategy. These concerns are having a significant impact on both the currency and options markets making life very difficult for companies looking to hedge.
Markets this morning seem to be apprehensive to hold onto sterling as they await Ms. May’s speech. The pound has already fallen below the 1.20 against the dollar, signaling a 1.6 percent drop since Friday and touching levels not seen since the mid-1980s. While against the euro, it hasn’t held up much better falling below 1.13 (EURGBP .8850) in early morning trade, levels which we last saw around the flash crash in October of last year.
The FTSE 100 began also this week on a similar footing to the last, with the weakness in the pound continuing to act as a catalyst. The drop in the pound has aided the FTSE over the past couple of weeks with it closing higher every day since just before Christmas.
The market here may be getting a bit ahead of itself with the heavy sell off in the pound. It should be expected as with all negotiations that both parties will put forward their strongest hand forward and include elements of bluff to try and ensure the best possible deal. We won’t really know until the negotiations begin what Britain is truly willing to give up.
The calendar for the rest of the day is particularly light as the market awaits tomorrow’s speech. Other releases of note are UK and US inflation numbers, while we have the ECB rate decision on Thursday.