By Simon Kennedy
The pound again bore the brunt of Theresa May’s Brexit planning, falling beneath $1.20 for the first time since October after newspapers reported she is prepared to leave Europe’s single market and customs union if that’s what it takes to regain control of immigration and law-making.
Sterling slid against all of its major peers ahead of the UK prime minister’s much-anticipated speech on Tuesday. Downing Street declined to comment on speculation, but said May will call for a “new and positive relationship” with the European Union.
Making investors more jittery is the Sunday Times’s citing of government officials as saying they expect her comments to cause a further “market correction.” Bloomberg’s Tim Ross and Svenja O’Donnell report the Treasury intends to speak to major banks after May’s speech to smooth the reaction.
Traders have previously viewed May’s pronouncements on Brexit as a reason to sell the pound as she tends to fan speculation she is prioritizing social issues such as clamping down on foreign labor over the trading needs of the economy.
The pound dipped below $1.20 in early trading for the first time since last October’s so-called flash crash, when it plumbed a three-decade low of $1.1841. Meanwhile a measure of anticipated swings for the currency climbed to the highest in three months.
While May has repeatedly refused to give a “running commentary” on her strategy, Bloomberg’s Alex Morales proves she has actually said quite a bit on topics from trade to the courts since taking office six months ago.
May got a boost on Monday as US President-elect Donald Trump said he will offer Britain a fast and “fair” trade deal.
Reversing the warning of President Barack Obama that the UK would be at the “back of the queue,” Trump told The Times “we’re gonna work very hard to get it done quickly and done properly. Good for both sides.”
“Brexit is going to end up being a great thing,” he said, predicting other countries will leave the EU.
The olive branch will reinforce the view of those who campaigned for Brexit that the UK can prosper once it’s free to sign its own trade pacts. It will therefore make leaving the customs union more appealing, reinforcing May’s hand in the divorce talks by allowing her to highlight she has opportunities outside Europe.
The UK government signaled it is toughening its stance towards the EU.
Chancellor of the Exchequer Philip Hammond laid down the gauntlet by telling Germany’s Welt am Sonntag that the UK will do “whatever we have to do” to boost its competitiveness if it can’t access the EU’s market after Brexit. That was interpreted as a hint he could cut corporate taxes and employment rules.
Hammond was criticized by opposition Labour Party leader Jeremy Corbyn for seeming to threaten a trade war. Norbert Roettgen, chairman of the foreign affairs committee in Germany’s lower house of parliament, told Die Welt that Hammond’s comments are “an expression of Britain being at a loss.” Bloomberg
The Guardian also reported the Netherlands plans to block any EU trade deal with the UK unless the British pledge not to start a “race to the bottom for profits taxation.”
Meantime, Brexit Secretary David Davis said the EU could “fail” if the negotiations don’t end with a strong new trade agreement with the UK. European leaders repeatedly say Britain can’t have a better deal outside the EU than inside.