The U.K.'s currency tumbled amid the unveiling of the country's agreement for its exit from the European Union and a number of Cabinet resignations.
The government said late Wednesday that it had reached an agreement in principle with the EU over negotiating terms for Brexit. The withdrawal agreement was also published late Wednesday.
Early Thursday, Esther McVey, secretary of state for work and pensions, and Dominic Raab, secretary of state for exiting the European Union, resigned.
The pound fell 1.9% vs. the dollar over the U.K. trading day, dropping to $1.2745 by 5 p.m. Greenwich Mean Time. The pound also fell against the euro over the day, by 2% vs. market open Thursday, to €1.1259.
The terms for the U.K. departure on March 29, 2019, had been “established, providing a smooth exit and orderly transition to the future relationship for people, businesses and organizations across our country,” said a statement on the government's website.
The deal — outlined in a 585-page document — includes a transition period until December 2020, when nothing will change for businesses. The document makes no mention of a passporting regime, under which firms in EU member states can provide financial services across the EU under a common set of rules.
Money managers also reacted to the agreement.
David Zahn, senior vice president and head of European fixed income at Franklin Templeton, said in a statement that investors will “likely have to react to news flow coming out from Westminster and Brussels. It may be difficult to read through the noise, but we think for those investors who can, there may be a potential opportunity to add value to their portfolios.”
Karen Ward, managing director and chief market strategist for Europe, Middle East and Africa at J.P. Morgan Asset Management, said in a statement that “there is also enough in the wording to suggest that U.K. financial services will be able to continue trading in the EU in much the same way today under an equivalence framework. Importantly, these rights cannot be removed in an abrupt or arbitrary manner.”
And Mike Amey, managing director and head of sterling portfolios at Pacific Investment Management Co., said in a statement that the firm expects volatility, a potential increase in U.K. sovereign yields and a strengthening of the pound, “though some Brexit-related risk premium is likely to remain.” Mr. Amey added that the likelihood of the Bank of England raising interest rates more than the expected two increases over the next two years, which is currently priced in by markets, has also risen.
