Thursday 28 Mar 2024
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This article first appeared in The Edge Financial Daily, on January 17, 2017.

 

KUALA LUMPUR: The British pound slumped yesterday as concerns of a “hard” Brexit resurfaced ahead of UK Prime Minister Theresa May’s Brexit speech today.

Earlier yesterday, the British pound plunged against the greenback to hit 1.1986 against the US dollar, its lowest since October’s “flash crash” at 1.1841. It recovered some of its losses at 1.2063 at 6pm.The sterling traded lower across Asia as well. It fell 1.20% at 137.787 against the yen, and 0.96% against the Hong Kong dollar at 9.3517. The ringgit also benefitted from the weakening pound, which was traded 1.16% lower at RM5.3770. The ringgit was traded between 5.0400 and 6.3046 against the sterling over the past one year.

Renewed fears arose among market watchers following media reports that May will signal plans to exit the European Union’s (EU) single market and customs union in her highly anticipated speech. There is also huge concern regarding the economic impact if the UK gives up its tariff-free access to the EU. The pound is expected to underperform ahead of the speech. The formal process of negotiating Brexit terms by May’s government is expected to begin by the end of March.

Downing Street described UK’s exit from EU’s single market as “speculation”. However, Christian Noyer, special envoy to defend the financial interests of France in the Brexit negotiations was reported as saying that “the UK leaving the EU means they leave the single market”. “There’s no way you can access the single market … so it will be a third country like any other,” Noyer told CNBC in an interview at the Asian Financial Forum in Hong Kong.

In an article in The Sunday Times, Brexit Minister David Davis wrote that Britain would consider ways to extend or smooth the exit process to provide certainty for businesses. “If it proves necessary, we have said we will consider time for implementation of new arrangements.

“We don’t want the EU to fail; we want it to prosper politically and economically, and we need to persuade our allies that a strong new partnership with the UK will help the EU to do that,” Davis wrote.

The weakening pound has also tested Asian stock markets, as most counters traded lower. The FBM KLCI closed 0.82% lower, as with other affected Asian markets namely Singapore’s Straits Times Index (-0.40%), South Korea’s Kospi (-0.61%), Hong Kong’s Hang Seng Index (-0.96%) and Japan’s Nikkei 225 Index (-1.0%).

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