Cheered by the prospects of improving global growth, investors piled into equities across Asia yesterday, but it was a different story for the pound sterling as Britain formally moved to exit the European Union.
The pound skidded 1.1 per cent to 1.7333 against the Singapore dollar yesterday after British Prime Minister Theresa May signed a letter on Tuesday to formally start Brexit. The currency was also hit after Scottish lawmakers voted on Tuesday to back plans to pursue a second referendum on splitting from the United Kingdom.
Most Asian markets rose as United States consumer confidence surged to a 16-year high this month while the US trade deficit in goods narrowed sharply last month, indicating the economy was regaining momentum after faltering at the start of the year.
Singapore's Straits Times Index jumped 0.85 per cent. Hong Kong shares rose 0.19 per cent, Japan edged up 0.08 per cent and Jakarta was up 0.93 per cent.
On the currency front, the euro also lost ground against the Singdollar, shedding 0.6 per cent to 1.5044.
The pound edged up very slightly to 1.7359 against the Singdollar as Article 50 of the Lisbon Treaty, which will start the two-year exit process, was invoked at 7.30pm Singapore time yesterday. But the pound gave back all its gains and resumed its decline within hours of the trigger.
European Council President Donald Tusk has said he will issue draft guidelines for the negotiations within 48 hours.
Bank of Singapore chief economist Richard Jerram said: "Negotiations over money are at the basis of many unpleasant divorces. The EU has suggested that the UK will need to pay around €60 billion (S$90 billion) to cover existing obligations. This is about 2.5 per cent of the UK's annual gross domestic product, and is meeting strong resistance from pro-Brexit politicians.
"Arguing over money will reduce the time available to discuss a new trade deal. This could be the trigger for another drop in the pound."
European stocks, which opened lower but later reversed losses, are expected to react as details of how Brexit will affect British businesses are made known and investors start to price in any negative impact.
Wall Street opened fractionally weaker, as investors appeared to be almost oblivious to Brexit, showing little reaction to the anticipated move. The Dow Jones Industrial Average fell 33 points to 20,670 minutes after markets opened.
Bank of Singapore chief investment officer Johan Jooste said: "There looks to be good economic growth going on everywhere, from the US to emerging markets."
