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FX round-up: Sterling up amid potential volatility of Brexit, Scotland independence, Fed and BoE

By Andrew Schonberg

Date: Monday 13 Mar 2017

FX round-up: Sterling up amid potential volatility of Brexit, Scotland independence, Fed and BoE

(ShareCast News) - Sterling turned in a positive performance on key crosses against a potentially volatile political-economic fabric this week of Brexit, a possible Scotland independence ballot and rate calls by the UK and US central banks.
At 17:13 GMT, sterling was up up 0.5% to $1.2228, and was up 0.67% to €1.1473. The dollar-spot index rose 0.08% to 101.330. Sterling also made gains against the aussie, loonie, kiwi and yen, but was flat versus the rand.

HL Currency Service senior analyst Chris Saint said this week was notable for its transatlantic congregation of currency-sensitive economic and political news.

"This week could see sizeable swings amongst sterling, dollar and euro exchange rates as markets pay attention to key events dominating the calendar," said Saint.

Bank of England is expected to hold its key rate Thursday, while Wednesday the US Federal Reserve is forecast to hike its. This latter after apparently supporting data and hawkish commentary from various Fed officials in recent weeks.

These potential outcomes had already been digested by the market, meaning any variation -- even in tone of accompanying commentary -- could see pair prices flutter.

On that note, Downing St on Monday afternoon confirmed PM Theresa May would not activate Article 50 of the Lisbon Treaty this week to begin UK's up to two-year Brexit divorce talks with the EU.

The market had been looking to such a trigger as early as Tuesday, with May's Brexit Bill being debated in both houses of parliament this week before an agreed text went for Royal Assent.

"The Scottish National Party has (on Monday) thrown another spanner in the Brexit works with calls for another Scottish referendum," said London Capital Group senior market analyst Jasper Lawler.

"The British pound was higher on the day since the announcement was well telegraphed by Scottish First Minister Nicola Sturgeon. The pound has already fallen sharply since the first rumblings of another referendum began two weeks ago," he said.

Market watchers appear to see the triggering of Brexit as a foregone conclusion, with the spectre of a potential second Scotland independence referendum only adding a further layer of complication to that.

"All else being equal, we would assume denying the Scots another referendum would be positive for the pound," said Lawler.

Spreadex financial analyst Connor Campbell thought the lack of reaction to Sturgeon's Monday announcement curious, suggesting investors were more focused on the Fed on Wednesday.

"Instead of indulging in volatility, sterling held on to its 0.4% and 0.6% gains against the dollar and euro respectively, suggesting that if there is another referendum investors are currently confident that Scotland would choose to remain as part of the UK."

Meantime, although the dollar-spot index was marginally higher and the greenback rose a snippet against the euro, the latter fell on the aussie, loonie, kiwi, rand and yen.

"Expectations have solidified over the Federal Reserve raising US interest rates this week following February's solid non-farm payrolls figure (last week) with investors seeking clarity on future rate hike timings (this year)," said FXTM research analyst Lukman Otunuga.

"If the economic projections of the FOMC members are bullish and suggest further US rate hikes this year then the Greenback may charge back above 102.00 in the short to medium term."

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