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Sterling falls on UK's smoke signals on Brexit

The pound has fallen against the dollar and euro after the U.K. government sent out smoke signals about the timetable for the country's "Brexit," with investors wavering over what this could mean for the U.K. economy.

U.K. Prime Minister Theresa May said over the weekend that she would trigger Article 50, which formally starts the exit process, by the end of March 2017 at the latest, sending the clearest signal to markets that Brexit was going ahead.

But despite giving investors (not to mention the EU) more clarity about the timing of Brexit – 100 days after the initial vote to leave the European Union back in June – markets reacted badly to the announcement, with sterling slumping to a 3-year low against the euro and three-month low against the dollar on Monday morning.

The pound pared some losses to trade down 0.76 percent against the dollar, at $1.2876 against the dollar and around 0.7 percent lower against the euro, with the single currency worth 87.20 pence. However, market watchers forecast more turmoil for the currency.


Altrendo Images | Altrendo | Getty Images

The pound's declines come as the ruling Conservative Party meets in Birmingham this week for the annual party conference and Brexit is firmly on the agenda.

Professor Tony Travers, director of the LSE London research center at the London School of Economics, who is attending the conference, told CNBC on Monday that "sterling will fall and there will be uncertainty in the markets" as the country got nearer to triggering Article 50.

He said that the government was trying to signal that it hadn't put the brakes on Brexit, saying that "this conference is about removing any doubt that (Brexit) is going to happen."

Meanwhile, forex traders agreed that there would be more losses in store for the pound: "In the next 100 days, the pound is unlikely to reach anything like its pre-Brexit value, despite more positive economic data emerging from the U.K. in recent weeks," Jake Trask, currency analyst at UK Forex, said in a note Monday.

"In fact, a move downwards looks much more likely. The uncertainty over when Theresa May will trigger Article 50, and what the final outcome of the Brexit negotiations will be, casts a long shadow over sterling," he warned.

All change, but in the meantime?

Sentiment towards the U.K. has not been helped by U.K. Chancellor Phillip Hammond's plans to change course on the economy, effectively abandoning a target to get the U.K.'s finances into surplus by 2020 as set by his predecessor George Osborne. He has also said Brexit talks could cause a "rollercoaster" for the economy.

Speaking at the Conservative Party conference on Monday, Hammond said that he will "reset" the government's fiscal policies when he presents his plans for the economy in the Autumn Statement, next month.

Analyst Aslam noted that whatever the measures announced in November "they are unlikely to fully counteract the challenges now facing the economy, or to force up the pound."

Rather, he said that markets were now focusing on whether the forthcoming negotiations between the UK and EU would lead to either a "hard" or "soft" Brexit in terms of relationship.

"Each one will act as paddle in a game of currency table tennis with sterling, by hitting it from one end to the other. From her comments it appears that next year it is going to be very volatile and the British currency may face a large move on any given day especially when it comes to conceptions and translations about Brexit," he said in a note Monday.

Speaking to CNBC on the sidelines of the conference on Monday, Bernard Jenkin, Conservative MP and prominent Brexiteer, told CNBC that there was no such thing as a "soft Brexit."

"People talking about a 'soft' Brexit are really talking about half-leaving and finishing up something like Norway (which is in the European Economic Area but not the EU) but that is clearly completely off the agenda," he said on Sunday.

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