James Trescothick

With more than 20 years of experience in financial service industry, James is our Senior Global Strategist and the co-producer and presenter of easyMarkets educational videos. When he is not working on educational programs or preparing webinars, you can find him with the easyMarkets team giving seminars around the world.

The United Kingdom’s decision to leave the European Union (EU) becomes official in the next 24 hours, setting the stage for a tumultuous two-year negotiation between London and Brussels.

Prime Minister Theresa May confirmed earlier this month that her government will trigger Article 50 of the Lisbon Treaty on March 29, nearly two months after Brexit received parliamentary assent. Article 50 outlines the formal process all EU member states must take to exit the Single Market. Unless all parties wish to extend it, the provision sets forth a two-year timetable for reaching a new trade agreement with the former EU member.

Large anti-Brexit protests swept London earlier this week. Organizers said more than 25,000 people took to the streets. Smaller demonstrations were also held in Edinburgh, Scotland.[1]

The UK is the first country to exit the EU, but might not be the last, according to experts. Euroscepticism is sweeping the region, with populist uprisings promising to take back control of their borders. Although an anti-EU party was recently defeated in the Dutch election, it made up considerable ground in parliament.

Upcoming elections in France and Germany may also serve as a grounds for anti-EU sentiment in two of the region’s biggest economies. Far-right leader Marine Le Pen is expected to be a formidable challenger in the French presidential race. The first round of the French election will take place on April 23. A run-off election is also planned for May 7 in the event no candidate wins a clear majority.

Brexit is a unique conundrum for the EU, and its novelty is not likely to be lost on the financial markets. The UK’s decision to leave last June triggered the biggest ever plunge in global equities and sent the pound to more than 30-year lows. While stocks recovered, the pound continues to plumb multi-decade lows against the dollar. At its worst, sterling traded at 168-year lows against a basket of other major currencies.[2]

The pound continues to face volatility, with analysts predicting a steeper fall for the currency now that the Bank of England (BOE) has committed to easing monetary policy further. The BOE slashed interest rates back in August for the first time since the financial crisis.

Grueling Brexit negotiations could possibly strain investor sentiment over the next two years. Uncertainty over the outcome of the negotiations could at times undermine risk sentiment, leaving equities vulnerable to further volatility. Brexit has also triggered a populist uprising across Europe, creating fresh fears of further devolution from the soon-to-be 27-member EU.

March 29 will be an important day for the UK. The next two years could unfold in dramatic fashion for the world’s fifth largest economy, and its impact will be felt directly on the financial markets.

[1] The Association Press (March 25, 2017). “Tens of thousands protest Brexit in London on EU’s 60th anniversary.” The Star.

[2] Mehreen Khan (October 12, 2016). “Pound slumps to 168-year low.” Financial Times.

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