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FX round-up: Sterling down versus euro, dollar after ECB as focus shifts to Fed

By Andrew Schonberg

Date: Thursday 09 Mar 2017

FX round-up: Sterling down versus euro, dollar after ECB as focus shifts to Fed

(ShareCast News) - Sterling is down against the euro and dollar on Thursday evening after European Central Bank (ECB) stood pat on monetary policy this afternoon and as the market anticipates a US Federal Reserve rate hike next week.
At roughly 17:16, sterling was down 0.08% to $1.1258, and also down 0.46% to $1.1491. The dollar-spot index fell 0.15% to $101.920.

Although the ECB's meeting outcome held potential to stir volatility in the Brexit-beleaguered British unit, its holding of the benchmark interest rate and QE programme unchanged passed relatively calmly.

Brexit remained centre-stage on investors' radars, observed FXTM research analyst Lukman Otunuga, who pointed out that the market had taken the UK Spring Budget in its stride.

"The ongoing Brexit woes have effectively limited any meaningful gains on Sterling during trading this week," said Otunuga in a statement.

"Sterling may find itself under renewed rounds of selling if the Brexit uncertainties persist this month," he adding, suggesting weakness below $1.1250 could spark a slide towards $1.2000.

Against this fabric, sterling made minor gains against the aussie, loonie, kiwi and yen, and did modestly well against the rand.

The dollar improved versus all those currencies, but tracked mildly lower on the euro.

This was as the market increasingly anticipates the Fed to lift its interest key interest rate next week, this following a recent string of hawkish comments from central bank officials, among them chair Janet Yellen.

IG market analyst Joshua Mahony commented on the hesitation evident within both European and US markets this week, with direction often being found across the FX markets rather than the indices.

"Nevertheless, with the heightened volatility in the crude market (following a surge in US inventories last week), coupled with tomorrow's impending US (non-farm) jobs report, it is likely we will see things pick up to close out what could be the final week before a rate rise from the Fed."

Jasper Lawler, senior market analyst at London Capital Group, noted the EURUSD pair had swiftly reversed from its lowest this week to above €1.06 during the ECB press conference.

"The jump in the euro today says markets see no easing of policy from the ECB today as meaning tapering quantitative easing tomorrow," he said.

"From a purely Eurozone economic data perspective, the euro is undervalued. But the (geo-political) factors at play are not entirely economic," said Lawler.

He was referring to possibility popularist candidates performing well in France's and Netherlands' respective elections.

"Whether (ECB president Mario) Draghi is forced to succumb to any pressure to end the ECB's ultra-accommodative policy stance will depend on the outcome of this year's European elections," said Lawler.

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