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What Is Article 50 and How Does It Influence The Pound?

Do you intend to make a money transfer abroad in the foreseeable future? If so, you may have heard about something called 'Article 50' on the news, and that it's related to Brexit.

In addition, you may have seen that 'Article 50' affects the value of the pound, on the foreign exchange market.

If that's the case, in this article I'll tell you exactly what is 'Article 50', and how it's influenced sterling so far.

You may find this information helpful, so you can look out for news about 'Article 50' in future, and it's impact on the exchange rate. In turn, this may help you to decide when to transfer money.

What Is 'Article 50'?

When we talk about 'Article 50', we refer to Article 50 of the Treaty of Lisbon. This is a treaty signed by the 27 member states of the European Union (EU) on December 13th 2007, and it came into law on December 1st 2009.

In particular, Article 50 gives any member state of the EU the right to exit unilaterally. The article allows for 2 years to negotiate this exit.

Following the UK's referendum to exit the EU on June 23rd 2016, the UK became the first EU member state to trigger Article 50, almost a year later, on March 29th 2017.

On that day, prime minister Theresa May sent a letter to European Council president Donald Tusk, notifying Mr. Tusk of the UK's decision to exit the EU, and triggering the 2-year window.

How Has 'Article 50' Influenced The Pound?

The first way in which 'Article 50' has influenced the pound is that it's put the UK in a strict timetable to negotiate an exit deal with the EU.

Since prime minister May triggered 'Article 50', she's been under immense pressure to ensure that the UK's exit terms are favourable, before the deadline on March 29th 2019. This pressure has been reflected in the value of sterling.

Another way in which 'Article 50' has affected the value of sterling is that it's meant that the UK's future relationship with the EU is unclear.

Since the UK joined the European Economic Community (EEC) in 1973, Britain's and Europe's economies have become very enmeshed. With 'Article 50', it's unclear if the UK will retain close ties to Europe. This too has impacted on sterling.

Can 'Article 50' By Revoked or Extended?

Yes. On December 10th 2018, the European Court of Justice (ECJ) ruled that the member state that triggered Article 50 can unilaterally revoke it.

The ECJ's decision surprised both the UK government and the European Commission, who'd assumed that Article 50 could only cancelled if all 27 EU member states vote to do so. In effect, the ECJ's ruling gives the UK the right to unilaterally cancel Brexit.

In addition, it looks likely that 'Article 50' can be extended too. Following the House of Commons' vote last week to extend the UK's Brexit timetable, Mrs. May will now ask the EU for more time.

This may influence the pound, by reassuring financial markets that the UK intends to reach a Brexit deal, though equally, it also extends the uncertainty.

In conclusion then, you now have a clear idea what 'Article 50' is, and how it's affected the pound. You may like to keep this information in mind, for when you transfer money abroad.

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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or email peter.lavelle@purefx.co.uk.

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