All You Need To Know About Article 50 and Its Impact on Foreign Exchange

All You Need To Know About Article 50 and Its Impact on Foreign Exchange

What is Article 50 all about?

Article 50 is a clause in the Treaty of Lisbon (which was signed by all EU nations in 2007 and became a law in 2009) that allows an EU member the right to quit the European Union. It also provides an outline and instructions that the quitting nation needs to follow.

Once set in motion, the member will have only two years to negotiate a deal for exit which can be extended (if needed) with a unanimous consent from all member nations, and can only be stopped with the same.

When was the Article 50 set in motion and by whom?

On March 29, 2017, Prime Minister of Great Britain Theresa May initiated the Article 50 shortly after 12.00 pm. This implied that Great Britain will now have until April, 2019 to leave the European Union. It would also have to come up with an exit deal that must be approved by all the other member states of the EU, and must also be permitted by the European Parliament.

So, what will happen to the GBP Sterling now?

There will certainly be post-effects of the Article 50 on the GBP strength, but trade analysts are expecting these impacts to be moderate. In fact, the price of the Pound Sterling has witnessed a steady rise in the week after the announcement in comparison to the rise of the Euro.

The reason behind this rise is being attributed towards the fact that traders are now able to understand the effects of the separation of Britain from the EU and have accepted it widely. It is also to be seen as to what exit deal Britain comes up with as that is also sure to have impacts on the Sterling.

However, there will be mild fluctuations of the GBP strength over the course of the next two years as the “divorce” comes to a close.

So, how would the Sterling value shape up in the future?

Well, it is really difficult to estimate how the Sterling would behave in the near future as the upcoming Brexit negotiations may have numerous varied impacts on it over the next two years.

This has also cast a cloud of uncertainty over the value of the Sterling with many trade analysts and strategists now reluctant to make any forecasts about the behavior of the Pound Sterling in the global financial market. The Sterling’s value will be impacted not only by the developments in Britain, but also those that take place in other member states of the EU.

Now, it is practically impossible to predict the developments of other countries and their impacts on the GBP strength over a course of two years.

Hence, making a prediction and drawing up strategies to manage the development of the value of Sterling has become a nightmarish effort for most trade analysts and strategists.

The invocation of the Article 50 has indeed left the GBP Sterling in a tight spot, and investors have very little to do apart from wait and watch how the value of the Sterling shapes up over the course of the Brexit negotiations.