FX round-up: Brexit start date ushers in new era of punishment for sterling

Sterling had a tough time on key crosses Monday after PM Theresa May's office said Article 50 will be triggered on 29 March, beginning UK's divorce from the EU and ushering in a new era of punishment for the already threadbare currency.

At roughly 17:05 GMT, sterling was down 0.4% to $1.2347, and down 0.36% to €1.1501. The issue also ebbed on the aussie, loonie, kiwi, rand and yen.

At the same time, the dollar-spot index was up 0.1% to $100.400.

"Sterling may be in-store for some serious punishment this week," said FXTM research analyst Lukman Otunuga in a statement, extrapolating from the currency's reaction to news of Brexit talks beginning next week.

"It is becoming clear that the Brexit developments are likely to dictate where sterling trades in the medium to longer term with uncertainty effectively limiting any extreme upside gains."

Otunuga reckoned sterling bears might return on a move below $1.2300, adding risk appetite was absent from the market after the G20 summit decided to drop a pledge to avoid trade protectionism in its communique after US pressure.

Craig Erlam, senior market analyst at Oanda, observed the timing of the Article 50 trigger was no real surprise, sterling's reaction showed its sensitivity to even expected Brexit news.

"While the drop off in the pound isn't too severe, it was enough to take it into negative territory for the day," added Erlam.

"It also acts as a reminder that the next two years will likely continue to be volatile for the UK currency as well as the FTSE and UK Gilts, with traders still concerned about the road the country is on."

Neil Wilson, senior market analyst at ETX Capital, reached a similar conclusion on sterling's sensitivity going forward in the face of Brexit's "grim reality".

"We have to assume that the stark reality of exiting the European Union is hitting home," said Wilson in a statement.

"We’re now in for a long period of volatility for the pound and UK assets as the government embarks on protracted and hugely challenging Brexit negotiations."

Meantime, the dollar was mostly lower on key pairs, retreating versus the euro, aussie, kiwi, rand and yen, but fashioning a minor rise on the loonie.

"The lingering impacts of last week's 'dovish hike' can still be seen on the greenback, which remains on the back foot," said Otunuga.

"Investors may pay extra attention to the string of speeches from Fed officials this week which could offer further clarity on interest rate hike timings this year," he added, suggesting a "hawkish surprise" could sent the dollar-spot index back towards $101.00.

"From a technical standpoint, the dollar index remains heavily pressured on the daily charts. The 100.00 psychological support remains a key level which could protect the bulls or assist the bears."