The British pound weakened on Wednesday as the U.K. formally began the process of leaving the European Union.
changed hands at $1.2411, up slightly from $1.2456 late Tuesday in New York.
The British currency wavered in early trade before turning decidedly lower. It was off 0.3% to $1.2408,
The pound is now down roughly 0.5% on the week, and it is up by about 0.5% against the dollar in 2017 to date. It is down about 17.5% versus the buck since Britons voted on June 23 to leave the EU.
The U.K. government letter received by Donald Tusk, president of the European Council, officially kicked off two years of negotiations that will culminate with Britain’s departure from the trade bloc. The letter, which invokes Article 50 of the Lisbon Treaty, formally states the U.K.’s intention to withdraw from the EU. It was handed over at lunchtime Wednesday in Brussels after being signed by British Prime Minister Theresa May the day before.
Brexit Begins: What Happens Next
Prime Minister Theresa May has officially triggered Article 50 of the EU’s Lisbon Treaty and notified the bloc of the U.K.’s intention to withdraw. WSJ’s Jason Douglas explores the decisions, deals and conflicts that could arise over the next two years.
In the letter, May exhorts her European peers to work toward a mutually beneficial agreement that would preserve cooperation on issues like crime and terrorism while avoiding a return to a hard border.
Investors are now awaiting Tusk’s response over the next two days, which has the potential to rattle markets, said Naeem Aslam, chief market analyst at Think Forex.
“The next 48 hours are extremely important [for the pound],” Aslam said in a note.
Sterling had been under pressure late Tuesday in New York, falling as much as 0.9% to $1.2450 versus the dollar. Complicating matters, the Scottish parliament voted to hold a second independence referendum, granting first minister Nicola Sturgeon the authority to negotiate with Westminster on holding another vote.
The recent pressure on the pound also has stemmed from the dollar’s rebound as investors refocus on the strength of the U.S. economy.
“We believe that the dollar recovery will be more important for the pound in the coming days,” said Kathleen Brooks, research director at City Index, in a note.
Meanwhile, the ICE U.S. Dollar Index
was up 0.3% on Wednesday to 100.01, breaking above 100 for the first time in a week. The index advanced 0.6% on Tuesday, largely thanks to a set of upbeat economic data. U.S. economic data.
A sharp drop in the euro was largely responsible for the index’s rise as investors digested a Reuters report that European Central Bank policy makers likely will leave their policy messaging unchanged when they meet next month. According to the report, which cited six sources close to the central bank, the central bankers would like to disabuse investors of the notion that the central bank is considering a further reduction in its monetary easing efforts.
Commentary from ECB President Mario Draghi following a meeting of the central bank’s Governing Council earlier this month triggered a rise in the euro and peripheral bond yields as investors ramped up bets that the central bank could raise interest rates early next year. This has troubled policy makers, who would like the currency to remain weak, and borrowing costs to remain low, to help make European companies more competitive.
“Judging by the headline we saw this morning, that might’ve seen a bit of an overreaction by the market that’s why we saw the euro struggle this morning,” said Sireen Harajli, a currency strategist at Mizuho.
bought $1.0757 in recent trade, compared with $1.0810 late Tuesday in New York.
In other currency trading, the dollar
weakened against the yen, with one greenback buying ¥110.94 in recent trade, compared with ¥111.13.