After months of speculation and media reports the UK government finally triggered Article 50 on Wednesday 29th April, and commenced the official exit process of the UK from the EU. While the UK government’s triggering date of article 50 has been well known ahead of time, financial markets took a cautious approach leading up to the event as the United Kingdom entered unknown territory.
The UK Prime Minister Theresa May officially signed the historic Article 50 letter and sent it to the President of the European Council Donald Tusk, so the process of Brexit negotiations officially began.
The FTSE 100 stock index reacted slightly on the negative side, and the sterling fell towards 1.2370 from a monthly high of 1.2618, but later recovered much of it’s losses towards 1.2500.
On Friday Mr Donald Tusk gave a press conference and laid out guidelines on the terms of Europeans Union’s negotiating position going forward. During his much anticipated statement he said that the EU is ready to open trade talks before Brexit as soon as sufficient progress on divorce terms are made. It was implied that the EU is willing to offer transition to a future relationship but must be limited in time and subject to enforcement.
However, during transition, EU regulatory, budgetary, supervisory and enforcement instruments and structures will apply to UK. Additionally, UK must respect all financial and legal commitments to EU, including contingent liabilities. It was also pointed by the European Council President that Brexit cannot offer the same benefits as membership.
The first Brexit summit will be held at the end of the month where European leaders will outline the initial guidelines and steps for the process as discussed by the UK and the EU. This will take much of the markets’ focus and might give insight into the reality of how the negotiations are likely to proceed.
Last week the U.S. dollar gained back lost ground after being on the back foot for much of March and setting multi-month lows for the dollar index. The downwards trend, which started after the Federal reserve raised interest rates, was fuelled by risk aversion and a lack of confidence in the Donald Trump administration’s ability to pass through their pro-growth reforms.
The greenback also strengthened against a basket of other currencies, the USD/CHF moved above parity after falling towards 0.9820 in early trading. The USD/JPY also managed to move back towards the 112.20 level after falling as low as 110.103 at the beginning of last week.
The euro reached a high of 1.09051 during the early days of last week before falling sharply back towards the 1.0650 level. The pullback of the single currency was sparked by Brexit fears, traders taking profit, and a flat denial from the European Central Bank (ECB) on whether they are planning to end their Quantitative Easing (QE) program sooner than earlier reported.
Eurozone Consumer Price Index (CPI) preliminary data for March released on Friday by Eurostat disappointed the markets as it showed a downtick in inflation from the previous month. The Year-on-Year March figure came in at 1.5% and so missed expectations of 1.8%, it was also sharply down from the previous month’s 2% figure.
Preliminary inflation data for Eurozone nations Germany, France, Spain and Italy all showed inflation moving downwards and gave credence to the ECB President Mario Draghi, who stated that inflation rises would be temporary for the Eurozone.