Traders prepare for sterling volatility ahead of Theresa May's Brexit speech

 
Caitlin Morrison
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The Pound Falls Against The Dollar Ahead Of Theresa May's Brexit Speech
The pound is in for a period of high volatility (Source: Getty)

The pound fell to a three-month low overnight, and is continuing to hover around that mark ahead of Theresa May's Brexit speech later today.

At pixel time sterling was back above $1.21, however, traders are preparing for volatility in the currency as the Prime Minister is set to lay out plans for a "clean break" from the EU.

On Sunday the pound dropped below $1.20 on reports that May would pursue a so-called hard Brexit, and while it subsequently recovered somewhat, yesterday saw the pound fall back below $1.20 to as low as $1.1996.

"We expect the volatility for sterling to remain very high and we do expect big moves for the currency today," said Naeem Aslam, chief market analyst at Think Markets.

"One of the major numbers under the spotlight is the support of 1.18 against the dollar, and if we break this number, then there is no harm in thinking that we may be moving towards the 1.15 mark against the dollar."

Kathleen Brooks at City Index agreed, and said: "If volatility does increase, and downside moves get larger then we could quickly smash through 1.1841, the low from October’s flash crash, and head towards 1.10 before May actually pulls the trigger on Article 50."

Meanwhile, Aslam warned that the FTSE may stop feeling the benefits of a weaker currency "because, starting from today, the fundamentals of the economy could change".

"The misconception that Brexit has not affected the UK economy will be broken," he added.

"The weakness in the currency may no longer be able to fuel the FTSE 100 index as traders are going to look at the bigger picture under which the UK's economy could suffer. So surely, you do not want to have a long position in a market where the prospects of upside moves are fading quickly."

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