Good morning,

All eyes on Westminster

Today is the day; Brexit will begin in a few hours’ time. In the grand scheme of things we do not expect today to be too much different from a normal trading day although the cacophony of cheering from one side and mourning from the other will surely generate some headlines.

Will the pound fall today? I don’t think so. We’ve known that Article 50 will be triggered by the end of Q1 for months now and the fact that it is happening this Wednesday should not come as a surprise to anyone. The triggering of Article 50 is almost certainly ‘priced in’ to sterling at the moment and, as we have said multiple times in the past, we think that the performance of the pound from here will depend on the UK’s team in Brussels gaining ‘quick wins’ as opposed to being dragged into a mire from where progress looks to be less than forthcoming.

News that the Scottish parliament had voted to hold another referendum on independence did not move markets at all. The May government in Westminster has already said that it will dismiss the request out of hand.

Sterling is most definitely primed for a rebound higher. The asymmetry of market expectations means that a couple of weeks of good data and some positive noises on big ticket items such as regulation of the financial services sector, could really set a fire under the pound. The major issue with this is that the negotiation process is unlikely to begin until June as Europe waits on the news from the French Presidential elections.

Webinar on Article 50 impact this afternoon 

Registration is still open – you can sign up here – for this afternoon’s webinar on the ongoing impact of Article 50 on the pound and the wider UK economy. We’re live from 2pm this afternoon but if you can’t make it a recording will be made available as well.

Fed doing more for USD than Trump at the moment

While the UK may feel the centre of the political world there are other influences that need to be addressed. Once again comments by Fed members around the schedule of further rate rises this year have given the USD a pickup in its step. USD posted its biggest one day gain since March 2nd yesterday as Federal Reserve Deputy Governor Stanley Fischer said that two more rate hikes this year was “about right”.

While the probabilities of Fed action have slipped a little since the Trump healthcare plan was announced dead on arrival swaps markets still have it as a 50/50 shot that we see borrowing costs rise by 25bps in June and a 1-in-3 chance of another one by Christmas.

Trump is set to meet with his economic advisors on tax plans tomorrow. Bloomberg reported last night that “one of the proposals that will be presented is the border-adjusted tax, a centrepiece of the plan favoured by House Speaker Paul Ryan. That provision would replace the 35% corporate income tax with a 20% levy on companies’ domestic sales and imported goods. Exports would be exempted.”

Have a great day

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