Global markets are still shocked—shocked!—that Britain is really leaving the EU

“Not again!”
“Not again!”
Image: ReutersS/Brendan McDermid
We may earn a commission from links on this page.

The pound has taken another pummeling. On the morning of Jan. 16 in Asia, it dropped below $1.20 for the first time since October’s “flash crash.” The cause? A speech prime minister Theresa May is expected to give tomorrow, saying the UK will give up access to the EU’s single market in favor of greater immigration control.

You might be forgiven for wondering what’s surprising here. Isn’t this exactly what Britain agreed to when it voted for Brexit last June? Pro-Brexit leaders promised voters control over immigration and lawmaking, and the EU made it clear that the single market and free movement between the UK and the continent must go hand-in-hand. Nonetheless, every time the UK government suggests this is what’s to come, there’s a fresh selloff in the pound.

Westminster officials foresaw the backlash (paywall) over the weekend, warning that May’s comments would probably lead to a “market correction.” At least this means the pound won’t fall in the middle of her speech.

The pound has fallen close to 20% against the dollar since the June 23 referendum. But traders had been holding on to the hope that the government would want to preserve the financial industry’s current access to European markets. After all, financial services are one of the UK’s largest exports and are an engine of growth for London and the UK.

May’s speech, therefore, will confirm that her government cares more about controlling immigration and UK law than mitigating the possible economic damage of leaving the single market—in other words, it will be a “hard Brexit.” That’s what is causing investors fresh angst.

Could the market be surprised yet again? Hard to know—but part of the problem is May’s refusal to give a “running commentary” on negotiations. Her speeches and interviews are some of the only information available. As a result even things she’s said before can wobble the markets. HSBC forecasts the pound could fall to as low as $1.10 if Brexit is indeed as “hard” as it it looks like being.