Sterling rallies after May sets course for Brexit

The value of the pound went past $1.23, having started the day at $1.20, a move which was attributed to the prime minister's media management of her speech and the increased certainty about the government's plans for the upcoming Brexit negotiations.

In her speech Mrs May said the UK would be leaving the European Union's single market and probably the customs union, though she admitted to having an "open mind" about the latter.

She also expressed scepticism about a transitional deal, warning this could leave the UK in a "permanent political purgatory" and said "no deal is better than a bad deal for Britain".

Vinay Sharma, senior trader at Ayondo Markets, said: "With the major talking points from Theresa May’s speech already leaked over the past two days, the market reaction to her speech has been fairly predictable.

"Despite the confirmation that the UK will be leaving the single market, what is apparent is that the market appreciates clarity rather than ambiguity.

"With the FTSE setting new record after new record in the past fortnight, it will be interesting to see how it reacts to a rallying pound."

The market reaction to her speech has been fairly predictable.Vinay Sharma

In her speech, Mrs May set out 12 demands which Britain will aim for in the upcoming two-year negotiations with the EU, which will start when the UK triggers Article 50 of the Lisbon Treaty.

The government has said it will trigger Article 50 by the end of March.

Among the 12 aims are a free trade agreement with the EU, control of immigration coming into Britain from the EU, maintenance of the common travel area with Ireland, control over British laws and a smooth and orderly Brexit.

Mrs May said any new trade deal could take into account elements of the single market, particularly in areas such as financial services and the export of cars.

She said: "It makes no sense to start again from scratch when Britain and the remaining member states have adhered to the same rules for so many years."

Kames Capital’s chief investment officer, Stephen Jones, said: "Sterling has been the barometer of the success or otherwise for the approach being pursued by the UK; it is notable that it bounced well off its recent lows during and immediately after the speech.

"We strongly suspect this will now continue, and having outlined a path that many have been thinking is a worst case scenario, the outcome may well be considerably better."

It is notable that it (Sterling) bounced well off its recent lows during and immediately after the speech.Stephen Jones

Carolyn Fairbairn, director general of the Confederation of British Industry, welcomed the greater clarity Mrs May's speech provided but warned her Brexit strategy was not without risks.

She said: "Ruling out membership of the single market has reduced options for maintaining a barrier-free trading relationship between the UK and the EU.

"But businesses will welcome the greater clarity and the ambition to create a more prosperous, open and global Britain, with the freest possible trade between the UK and the EU. 

"The pressure is now on to deliver these objectives and achieve a smooth and orderly exit.

"Businesses want to make a success of Brexit but will be concerned about falling back on damaging World Trade Organisation rules."

Keith Richards, managing director of engagement at the Chartered Insurance Institute and chief executive of the Personal Finance Society, said it was good news that Mrs May acknowledged the risk of an economic and legal “cliff edge” and the impact it could have.

She proposed a “phased period of implementation” to give firms that much needed breathing space to consider what the new EU-UK partnership could mean for them.

However she neglected to mention anything about time limits.

damian.fantato@ft.com