U.K. Prime Minister Theresa May firmed up the exit schedule from the European Union for the U.K., announcing on Sunday that she will trigger Article 50 of the Lisbon Treaty before the end of first quarter next year.
This sent sterling to a lower level on Monday with the exchange rate falling below $1.29 as a hard Brexit likelihood increased.
“The confirmation by the prime minister does highlight the fact that the government is committed to leaving the EU,” said Shilen Shah, bond strategist at Investec Wealth & Investment, in a news release. “The weak pound may provide some support to the export-orientated FTSE 100.”
“Gilt market issuance is likely to increase given U.K.'s likely weaker GDP profile following a hard Brexit; the Bank of England's monetary easing, however, should keep a lid on gilt yields rising significantly,” he added.
Azad Zangana, European economist at Schroders, added that “May’s hint of a hard Brexit have sent sterling to its lowest level since 1985."
He added that sterling has further to fall, which raises the probability of Schroders' above-consensus forecast for inflation reaching 3% next year.
Paul Lambert, head of currency at Insight Investment, agreed, saying that “since the referendum sterling has traded in a range, and this ‘break out’ opens the possibility that sterling could move significantly lower."