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Sterling not shaken by Article 50 vote

Sterling has held up well over the past month, despite a significant majority of MPs voting in favour of (and without amendments) the Article 50 bill which gives the Government the power to begin the EU negotiations when it chooses. Moreover, sterling’s strength against the dollar looks at odds with the fact that UK interest rate expectations relative to those in the US have fallen. Indeed, markets now don’t anticipate a hike in official interest rates occurring in the UK until May 2019, while expectations that the US Fed could press ahead with tightening policy in the next few months have grown. Markets may have been comforted by the fact that Parliament will get a vote towards the end of the negotiations. Note too that the pound has risen against the euro over the past month, perhaps due to markets turning their attention to political uncertainty in the euro-zone. Looking ahead, we think that the divergence in monetary policy outlooks will see the pound fall back against the dollar. By contrast, we are less optimistic about the euro-zone economy than most and think that the pound will rise against the euro.

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