September 22, 2017 / 2:38 PM / a year ago

Sterling skids as Brexit speech does little to satisfy markets

LONDON (Reuters) - Sterling skidded against the dollar and the euro on Friday, after British Prime Minister Theresa May failed to give any concrete details for how Britain might retain preferential access to Europe’s single market.

A British ten pound banknote is seen in a photo illustration taken March 16, 2016. REUTERS/Phil Noble/Illustration/File Photo

In a closely watched speech in Italy, May said Britain should stay in the trade bloc during a roughly two-year transition out of the European Union, and offered concessions on a divorce deal as she appealed for a revival of Brexit negotiations.

May said Britain would honour its budget commitments made during the period of its EU’s membership, and that Britain could seek a “better” deal than that a Canada-style free-trade agreement or membership of the European Economic Area would offer.

But analysts said the speech was scant on details about how Britain might secure proper access to the EU’s lucrative single market, a sticking point in the negotiations, causing traders to sell the British currency.

The pound slipped to as low as $1.3488 GBP=D3 during the speech, down from around $1.3550 before May began speaking.

The EU’s Brexit negotiator Michel Barnier praised May’s speech for a “constructive spirit” in divorce talks with the EU, but said he needed more clarity on what some of her declarations meant. Sterling gained about 20 ticks after Barnier’s response, last down 0.4 percent on the day at $1.3527.

It also fell against the euro, last down around 0.7 percent against the single currency at 88.55 pence. EURGBP=D3

“Theresa May outlined her vision for an optimistic and upbeat relationship with the EU, but today’s speech in Florence has done little to satisfy the markets,” said OFX currency analyst Hamish Muress.

“Traders looked for hints around future access to the single market, and were disappointed not to find them in the prime minister’s speech.”

Minutes before May’s speech, sterling had fallen around 30 ticks on a report in the Telegraph newspaper that May would raise the possibility of Britain leaving the EU before March 2019. May said in answer to a question that Britain would leave at the end of March 2019.

Britain's FTSE 100 .FTSE jumped 0.7 percent to the week's high as the weaker pound boosted its mainly foreign-earning constituents.

British government bond futures FLGcv1 briefly rallied by around 15 ticks to a two-day high during the speech, before paring gains to trade at around the level they were before she started.


The pound has risen over 5 percent against the dollar this month, most of its gains coming largely on the back of a hawkish shift in the Bank of England’s stance on record low UK interest rates. At its latest policy meeting, the BoE said interest rates could rise in “coming months”, prompting many banks to forecast a hike as soon as November.

Sterling had risen against the dollar on Thursday after the BBC reported May would say Britain is willing to pay 20 billion euros (£17.70 billion) to the EU during a post-Brexit transition period, conditional on access to the bloc’s single market.

But May made no mention of any concrete payment figure in her speech.

“I really don’t think there’s anything in that speech to frighten sterling long positions quite yet,” said CMC Markets analyst Michael Hewson.

Investors were also watching out for a sovereign debt rating of Britain from credit ratings agency Moody’s due later in the day.

Reporting by Jemima Kelly, Ritvik Carvalho, Helen Reid and David Milliken, editing by Nigel Stephenson and Angus MacSwan

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