The pound is charging after May confirmed Britain will leave the single market

LONDON – The British pound is surging after Prime Minister Theresa May delivered her first major speech outlining the kind of Brexit the government will pursue.

She confirmed Britain will leave the European Single Market, signalling Britain is heading towards a “hard Brexit” – shorthand for an EU exit that takes the country out of both the European Single Market and Customs Union in order to gain full control over EU immigration to the UK.

The prime minister told an audience of foreign diplomats and ambassadors that she will terminate Britain’s membership of the free-trade area, saying: “What I am proposing cannot mean membership of EU single market.”

You can see the key points from her speech here.

Sterling tanked over the weekend on initial press reports that it was likely to enact a “hard Brexit.” Markets had expected a further fall in sterling during the speech. But after Downing Street briefed members of the press about the contents of her speech, the pound began to climb and continued to do so during the speech.

It appears to have been helped by May’s confirmation that both the House of Commons and the House of Lords will be given the opportunity to vote on Britain’s final Brexit deal, adding a moderating influence into the dealmaking process.

As of 1.30 p.m. GMT (8.30 a.m. ET), around an hour after May ended her speech, the pound is trading at 1.2319 against the dollar, a gain of more than 2.2% on the day. Here is the chart:

Sterling earlier gained additional support from a fall in the dollar after comments from US President-elect Donald Trump that the USA’s currency is “too strong.”

“Our companies can’t compete with them [Chinese companies] now because our currency is too strong. And it’s killing us,” Trump told the Wall Street Journal.

Sterling received an additional boost after higher than expected inflation figures were released by the Office for National Statistics on Tuesday morning. Consumer Price Inflation hit 1.6% in December against a forecast of 1.4%.

Commenting on the contents of the speech, Kathleen Brooks, the research director at spread betting brokerage City Index said:

“The fact that the government will put the final deal to a vote in both Houses of Parliament seems to be the rallying cry for sterling, as it could limit some of the excesses of some of the Brexiteers. But, even this concession cannot hide the fact that the UK wants the best parts of the EU, with a cherry on the top, which could make the next two years’ extremely tense. So, the pound is not out of the woods yet.”

Elsewhere in the UK’s financial markets, the FTSE 100 has lost some ground since May started to speak, dropping from around 7,306 points at 11.45 a.m GMT to around 7,286 points now, as the chart below illustrates:

UK bond yields ticked a little higher during the speech also, with the benchmark 10-year Gilt yield climbing around 0.3 basis points: