In the first high profile event of the week (apparently there’s something happening in Washington on Friday?), UK Prime Minister Theresa May finally revealed her Brexit strategy in a keynote speech to EU ambassadors and journalists in London in an attempt to clarify the UK Government’s plans for its EU exit.

As was reported overnight by Sky News, in what could be seen as a ‘strategic leak’ to quell a negative reaction in financial markets, May confirmed in her speech that the UK would leave the EU Single Market. A Hard Brexit.

However the PM offered far more clarity than was expected, going so far as to confirm that both Houses of Parliament were to get a vote on the final Brexit deal, negating the pending Supreme Court decision on the matter – something perceived as a ‘softer’ element.

So how did markets react?

Thanks in part to the leaked report alongside the latest UK inflation report showing an acceleration, the reaction in the keenly watched foreign exchange markets was overwhelmingly positive, despite previous hard Brexit rumours prompting significant sell offs in Pound Sterling pairings (remember the October flash crash?). This time, however, the move to clarify the UK’s position on single market access after months of speculation resulted in GBP rallying sharply against both the US Dollar and the Euro. Furthermore, the move by the PM to confirm that both Houses of Parliament would get to vote on the final terms of the deal helped to ease concerns that the court decision would delay the triggering of Article 50, still on course to be undertaken before the end of March. This removal of speculation and injection of clarification has helped Sterling move further away from its Monday lows of $1.198 to $1.238 highs, which includes a 1.6% rally from $1.218 since the beginning of the PM’s speech at 11:45am.

Yet this welcome showing of GBP strength had a notable impact elsewhere.

The UK 100 , having only broken its record run of closing highs yesterday by a marginal 10 points, has found itself in uncharted territory so far this year having suffered a breakdown of support. The surging Pound negatively impacted the UK Index ‘s foreign earners, around 70% of the index, causing a fall back below 7300 points and hurtling rapidly towards 7200, its largest fall since 10 November .

While today’s speech and resultant GBP rally may have relieved many FX investors today (and perhaps annoyed some UK Index backers), Wednesday’s US CPI inflation reading and Friday’s inauguration could revive US Dollar strength.

It should also be noted that in the long run, many hurdles remain despite May’s strongly delivered speech.

First, while the PM promised that Parliament would vote on the final deal with the EU, this has already been seen by some commentators (including ITV’s Robert Peston in the press conference that immediately followed the speech) as potentially becoming an empty gesture with little chance to affect the deal.

Second, the confirmation of an exit from the single market could result in increased tensions with Scotland, as First Minister Nicola Sturgeon has stated her intent on a second independence referendum for the country should the UK leave the trading area.

Finally, and perhaps most importantly, the EU may not allow many of the terms that PM May is hoping to achieve for Britain. Allowing the UK to ‘have its cake and eat it’ may prompt other EU members to do the same, therefore the deal that the Union affords the UK may not meet the spectrum of objectives stated today.

In the mean time however, the markets will continue to digest the first of what may prove to be many Brexit negotiation updates.

Henry Croft, Research Analyst, 17 January