27 Mart 2017 Pazartesi Breaking News             Latest US News            New York

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For many markets buoyed by the reassuring hand of central banks, buying dips has proved a profitable strategy. For sterling, selling strength looks a better strategy—even if the U.K. economy continues to perform better than many feared in the short term.Sterling...

Pound Will Feel Pain as Brexit Clock Ticks Faster

For many markets buoyed by the reassuring hand of central banks, buying dips has proved a profitable strategy. For sterling, selling strength looks a better strategy—even if the U.K. economy continues to perform better than many feared in the short term.Sterling...

Pound Will Feel Pain as Brexit Clock Ticks Faster

For many markets buoyed by the reassuring hand of central banks, buying dips has proved a profitable strategy. For sterling, selling strength looks a better strategy—even if the U.K. economy continues to perform better than many feared in the short term.

Sterling fell sharply against both the dollar and the euro Monday after U.K. Prime Minister Theresa May said Sunday the formal process for leaving the European Union would start no later than the end of March. The pound fell below $1.29, dropping more than a cent against the dollar.

The announcement of a timeline and the focus in Mrs. May’s speech on sovereignty and immigration should strip complacency out of the market. Any belief that Brexit could be swept under the carpet has been misplaced. The market is now tilted again toward trying to understand how economically disruptive Brexit might prove over the long haul.

The near-term data paint a less dire picture than originally expected, but that may only provide superficial support for sterling. The U.K. manufacturing purchasing managers index for September came in Monday at 55.4, its highest level since June 2014 and well above the 50-mark that divides expansion from contraction. The weaker pound played a part, helping to stoke export orders.

The resilience of the U.K. economy has also reduced the chance of further near-term action from the Bank of England, particularly given the scale of August’s package, which included a rate cut, purchases of government and corporate bonds, and funding for banks. That too might suggest support for the pound, but the BOE will remain concerned about the longer-term risks, especially what sort of deal Mrs. May hashes out on access to the EU single market. The BOE’s official rhetoric is likely to remain dovish.

Big questions around Brexit and the U.K.’s relationship with the rest of the world are no closer to being answered with clarity. That uncertainty should imply a higher risk premium for holding sterling. Any rise in the pound is likely to be short-lived—and present an opportunity to sell.

Write to Richard Barley at richard.barley@wsj.com

Our editors found this article on this site using Google and regenerated it for our readers.

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