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FX round-up: Sterling, dollar benefit as euro dives on dovish Draghi's comments

By Andrew Schonberg

Date: Monday 06 Feb 2017

FX round-up: Sterling, dollar benefit as euro dives on dovish Draghi's comments

(ShareCast News) - Sterling turned in a broadly positive performance on Monday against most key crosses with it and the US dollar gaining versus the euro after dovish comments by ECB President Mario Draghi.
Draghi said the ECB would not tighten fiscal policy to counter rising inflation in the Eurozone, commenting the increase was temporary and due to improving oil prices.

At 17:01 GMT, sterling was down 0.29% to $1.2448 and up 0.21% to €1.1600, while the dollar was up 0.5% to €0.9318. The dollar-spot index was up 0.33% to $100.200.

SwissQuote noted GBPUSD was still trading below resistance given at $1.2771, and that the pair kept "bouncing" lower.

"The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline," said SwissQuote, putting long-term support/resistance at $1.0520/$1.5018.

Both sterling and the dollar performed generally -- but not entirely -- positively against the commodity units of Australia, Canada, New Zealand and South Africa.

The safe-haven appeal of Japan's yen helped it rise on the pound and greenback, with gold and the dollar in favour for the same reasons as UK, European and US stocks indices faltered on political uncertainty.

These uncertainties, broadly speaking, included the US President Donald Trump and his platter of controversial executive orders, the fear of so-called hard Brexit for the UK, the euro area economy, and US sanctions of Iran.

IG market analyst Joshua Mahony said Draghi's words dragged the euro lower.

"The recent rise in euro-zone inflation had many wondering whether we would soon see an end to the ECB's expansionary stance," Mahony opined.

"Yet by disregarding inflation as largely energy driven, Draghi has essentially promised to maintain and even extend QE for a while yet," he added.

London Capital Group senior market analyst Jasper Lawler further added that European election jitters saw investors dump French and German shares.

Michael Hewson, chief market analyst at CMC Markets UK, observed that -- despite a weak wages number on Friday last week -- the dollar has on Monday experienced a sharp rebound on several key crosses, excepting the yen.

"The slide in US yields in the wake of Friday's weak wages numbers appears to be weighing on the US dollar here," he opined.

"This Friday's scheduled meeting between Japan's Prime Minister Abe and Donald Trump may also be a factor, prompting a paring of positions, given recent US criticism of Japanese monetary policy."

Finally, Lawler said that London Capital Group remained tactically bullish on gold with the central premise that the Federal Reserve will be slow to raise rates this year, constraining the dollar.

The risk to this was that the next leg of the so-called 'Trump rally' reduced the desire for safe-haven assets.

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