Sterling continues to look fragile
March 28th: Highlights
- Pharma deal triggers profit taking
- Dollar dealing with multiple drivers
- ECB Council Members backing Draghi policy
Pound suffering from lack of follow through
Of course, this doesn’t mean the immediate sale of that amount of Sterling and the process will be gradual, but it was sufficient to take the gloss off the recent rally. The pound fell to a low of 1.4066 but rallied back to close at 1.4157 and has moved higher overnight, making a high (06.30BST) of 1.4201.
With Q4 growth data due for release tomorrow, it is unlikely that traders will want to re-establish long positions ahead of the Easter weekend and the pound should trade in a relatively narrow range.
The FX derivatives market is signalling a bout of Sterling strength with risk reversals (the ratio of options to buy versus options to sell) at their highest level in a month.
It is generally accepted that quarter ends are generally volatile with currencies often moving “counter-trend” as Asset Managers rebalance their books, so it will be next week before the true direction for Sterling can be determined.
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Inflation and GDP data set for release in U.S.
The dollar remains under pressure due mainly to the unpredictability of President Trump’s decisions on trade, the threat of tariffs and his calls for China to reduce its surplus with the U.S.
It is believed that the President had conversations with the leaders of France and Germany yesterday to try to consolidate the condemnation of China’s trade practices. While it may be galling for those nations, particularly the U.S., who have exported manufacturing capability. iChina is sure to say that it has simply “taken up the slack” and produces goods that the world wishes to purchase.
It is unlikely that President Trump will have had too much success with Macron or Merkel since they will need to present a united front with the rest of the EU and there will be some doubts expressed that tariffs and sanctions will be the most productive route.
ECB presenting a united front
Liikanen is concerned about political risks, which he failed to elaborate upon specifically, derailing economic activity.
The Euro fell from its recent highs reaching a low of 1.2372 and providing a boost to the dollar index which reached a high of 89.63 before settling back a little lower.
Economic sentiment in the Eurozone fell which added to the general weakness of the single currency. It reached 112.6 following an upwardly revised 114.2 in January. Consumer confidence was unchanged, but manufacturing confidence was lower probably reflecting concerns over a possible trade war.
Have a great day!
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”