Sterling dips on U.K’s suspected exit from European single market

Economy - Mohit Shah - Jan 09,2017

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sterling dips on uks suspected exit from european single market


On Monday morning, British pound dropped to a two-month low against the U.S. dollar as the Prime Minister suggested the U.K. may exit from European single market.

It was observed that the sterling dipped below 1.22 U.S. dollars at around 6.00 a.m. (London time) on Monday morning, reaching lows unproven since the last days of October.

This fall is reportedly a result of the suggestions made by Prime Minister Theresa May regarding U.K’s exit from European single market.

In an interview last weekend, May cleared the fact that she will prioritize retaining the control of immigration in the hands of her government over facilitating access to the European single market once the U.K. quits the European Union (EU). The single market is a tariff-free trade compromise within the EU and is viewed as a crucial factor for certain sectors including car manufacturing.

Amidst this situation, London's critically essential financial sector has campaigned hard for continued entry to the EU's single market, over rising fears that key banks and asset managers will shift staff to the continent if they are not able to trade under the currently active "passporting" rules which allow business to be operative across EU member states.

However, strategists and traders also pointed to factors which are strengthening the U.S. dollar while analyzing Monday morning’s significant shift.

Geoffrey Yu, head of the U.K. investment office at UBS Wealth Management announced cautious positioning may be sanctioned as Britain’s exit schedule is drawing close.

"You want to be somewhat defensive heading into March,” said Yu, as he underlined that triggering Article 50 is probably the next possible binary event risk.

Craig Erlam, the senior market analyst at OANDA, commented the British currency remained highly vulnerable to the possibility of a raw deal concerned with the U.K. economy and highlighted further critical issues to follow.