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FX round-up: Sterling, dollar mixed ahead of Trump, Fed speeches

By Andrew Schonberg

Date: Tuesday 28 Feb 2017

FX round-up: Sterling, dollar mixed ahead of Trump, Fed speeches

(ShareCast News) - Sterling was lower on most key crosses Tuesday as markets took a cautious hue ahead of US President Donald Trump speaking before Congress, while in the UK yet another Tory icon questioned PM Theresa May's Brexit plans.
At about 17:09 GMT, sterling was down 0.15% to $1.2423, and 0.43% lower at €1.1704. The dollar-spot index fell 0.19% to $100.940. Apart from rises on the loonie and rand, the already lame British pound fell against the aussie, kiwi and yen.

"The pound has continued to remain on the soft side despite the reluctance of the US dollar to build on its recent gains," said Michael Hewson, chief market analyst at CMC Markets UK.

He added that sterling still seemed to be finding buyers about the $1.2400 area. Many market insiders believed the Trump speech later tonight would be the next major cable catalyst, potentially either for better or worse.

The British currency has struggled to make headway after the spectre of a second Scottish independence referendum came to the nervy fore on Monday, being regarded as yet another block in the long-running Brexit-sentiment jenga.

Against this cloth, former Chancellor George Osborne said UK's quitting the EU without an alternative trade deal would be the biggest single action of protectionism in the nation's history.

Osborne's tilt at May's rose-tinted Brexit plans was the third such launched by a Tory icon in the past week, and underscored the acrimonious mood within her party, which now appeared fractured along Bremain and Brexit battle lines.

Traders will be looking to a string of key UK data out later in the week, but so far as Tuesday went it was Trump and the US Federal Reserve's possible future stance on interest rates that were in immediate focus.

The dollar lost ground on the euro, aussie, kiwi and yen, but performed reasonably well with gains on the loonie and rand.

"It's been a mixed bag of a day for the US dollar after the latest revision of US Q4 GDP and core PCE prices came in weaker than expected, and prompted a slight softening of yields," said Hewson in a statement.

"This in turn has prompted a firming up of the Japanese yen and Swiss franc despite rising speculation that a March US rate rise may well be a more even bet than first thought."

Other US data out Tuesday revealed an unexpected improvement in consumer confidence for February, while the Chicago PMI also came in ahead of market views, and the Standard&Poor's CoreLogic Case-Shiller national home price index increased.

On Monday evening, Dallas Fed President Robert Kaplan said the US central bank should hike rates "sooner rather than later". This meant "in the near future," he said.

That came as Fed funds futures priced-in 50.0% odds of another 25-basis-point lift at the Fed's 14-15 March policy meeting, according to Bloomberg data, versus 34.0% one week before.

Later on Tuesday, attentions will also be turned to Fed officials, with speeches due from St Louis Fed President James Bullard, Philadelphia Fed President Patrick Harker and San Francisco Fed President John Williams.

"Things should be far livelier tomorrow, however," said Spreadex financial analyst Connor Campbell in a statement.

"Once investors have heard what Trump has to say in front of Congress they will have a better idea whether the current highs (especially in the US) are justified, or whether the President has blown the markets up with hot air and not much else," said Campbell.

"Not only that, the morning also brings with it a wave of UK and Eurozone manufacturing data, giving both reasons something to focus on beyond the political situation in America."

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