GBP/USD Falls as UK PM May Delivers Brexit Speech in Florence

Talking Points

• GBP/USD slipped back then recovered in Europe Friday as UK Prime Minister Theresa May delivered a long-awaited speech on Brexit in Florence in which she emphasised that the UK will cease to be an EU member in March 2019.

UK Prime Minister Theresa May offered no new concessions to the EU, emphasised that the UK will cease to be an EU member in March 2019 and said that it is in "all of our interests" for the Brexit negotiations between the UK and the EU to succeed. Speaking in the Italian city of Florence, where the Renaissance began and Niccolò Machiavelli was a diplomat and politician, she added that if we fail the only beneficiaries will be those who oppose our values.

We have made concrete progress on many important issues, she added, talking of a close economic partnership after Brexit.

May rejected continued membership of the European Economic Area, which she argued would not work for the British people. She also ruled out a Canadian-style free-trade agreement, saying it would not work for either side. Instead, a “creative” economic partnership was needed.

The UK PM argued that a period of implementation would be in the interests of both sides and said the transition was likely to be around two years. The details, she added, should be agreed as soon as possible.

On the contentious subject of money, May said the UK will honor its budgetary commitments and will make continuing contributions but she did not set out a sum, as had been widely expected.

If the negotiations fail, it will be a damaging blow to Europe's future but no deal would still be better than a bad deal, she said, adding that the negotiations could potentially be continuing until quite close to the March 2019 deadline.

In response to her comments, GBPUSD fell back after trading earlier in the week at its highest levels since the day after the UK voted to leave the EU in June 2016. However, it then rallied close to where it had been before the speech.

Chart: GBP/USD One-Minute Timeframe (September 22, 2017)