Tuesday, 28 March 2017
Why investors should pay attention to Brexit talks?
It’s been a while since we have spoken about Brexit and its effects on the British economy and financial markets. But here we are and with great timing, just few days ahead of a long-awaited formal application to exit the European Union.
British Prime Minister Theresa May is expected to trigger Article 50 of the Lisbon Treaty on March 29, giving a first official step to leave the bloc and start negotiations with Brussels. This event has been followed carefully by traders as markets would certainly react on the news.
But hey… what is Article 50? In simply words, it’s the reserves the right for any EU state to quit the bloc unilaterally. It also sets a procedure for leaving the European Union. Article 50 was included in 2007, before there was not legal way to abandon the community.
Three facts about Article 50:
- Once triggered, it cannot be stopped. That’s why it’s so important for markets and well… everybody else. There is no way around it and once it’s done, (oh boy) it’s done.
- The parties involved have two years to negotiate terms of an exit. Yeap. You’ll have to be patience. Not all things move as fast as markets do, especially politicians.
- The final deal between the United Kingdom and the EU has to be passed in the European Parliament and approved by a qualified majority of EU member states
However, the British pound has indeed suffered since last June. After the post-referendum drop, the currency was able to recover and it’s currently trading above the 1.2500 mark. But market analysts from big banks are bearish on the middle/long-term, so be aware. Currencies tend to react faster than any other assets on the market, so if you are planning to trade the official announcement on Thursday, keep your eyes on the GBPUSD, EURGBP and GOLD.
As the process moves forward, investors will have to pay attention to the talks and while they will be long and tedious, they will also worth it 100 percent. Again, currencies and bonds are possibly the best two most volatile assets affected by sentiment during negotiations.