We’re seeing a textbook short squeeze in the pound today following Theresa May’s press conference in which she outlined plans for Brexit ahead of article 50 being triggered in March.
The majority of what May had to say had been leaked ahead of the press conference so was expected. The one revelation that stood out though was the intention to put any deal before parliament, which in theory should tip the balance slightly further away from a hard Brexit even if May acknowledged that we will not be seeking access to the single market. This triggered a rally in the pound which in turn was the catalyst for the short squeeze that followed, sending it more than 2.5% higher against the dollar on the day, it’s biggest daily gain since 2008.
The market has been heavily short the pound as of late, with the pound being extremely sensitive to the prospect of hard Brexit. This left the market in such a position that any sterling positive revelations from May would trigger exactly the response we’ve now seen. The FTSE is now the worst performing major European index on the day, with the inverse correlation between the two that has been so strong since the Brexit vote back in June, driving it lower as the pound surged.
For a look at all of today’s economic events, check out our economic calendar.