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FX round-up: Sterling battles to a higher Friday close, but its outlook remains bearish

By Andrew Schonberg

Date: Friday 31 Mar 2017

FX round-up: Sterling battles to a higher Friday close, but its outlook remains bearish

(ShareCast News) - Sterling battled its way to a higher close on most major crosses in a Friday session rich with UK, US and European economic data, but the outlook for the British currency is bearish.
"In a decline that has lasted six quarters, matching a similar sequence back in the early 1980's, the pound looks to be on course to post its first positive quarter since Q2 2015," said Michael Hewson of CMC Markets UK.

This was in spite of Prime Minister Theresa May triggering of Article 50 of the Lisbon Treaty this week, which had set the clock ticking on the UK's possible departure from the EU, and Scotland's Parliament voting in favour of a second independence referendum.

FXTM said in a research note that uncertainty revolving around Brexit has already made sterling's outlook bearish.

"Since the Brexit shocker back in the June 2016, the GBPUSD has traded in a very wide range, but Scexit might well act as a catalyst for another market shaking selloff," said FXTM.

At roughly 17:10 GMT, sterling was up 0.55% to $1.2537, and up 0.38% to €1.1724. The dollar-spot index slipped 0.09% to $100.320.

Sterling, meanwhile, rose against the aussie, loonie, kiwi and yen, and did particularly well on a rand much weakened by South Africa's President, Jacob Zuma, sacking Finance Minister Pravin Goordan in a cabinet reshuffle last night.

"The pound continues to hold up relatively well during an eventful week," said Chris Saint, senior analyst at HL Currency Service.

This came as the EU's draft guidelines for Brexit negotiations suggested talks on a future trade deal would only start once 'sufficient progress' was made on agreeing exit terms.

EU Council President Donald Tusk insisted a 'punitive approach' to negotiations would be avoided.

"The pound barely budged after a third estimate of UK GDP growth for the final quarter of 2016 came in at 0.7%, unchanged from the second estimate," said Saint.

Meanwhile, Hewson said the euro had continued to struggle after a steeper than expected drop in its consumer-price index (CPI) inflation for March.

"This is unlikely to please the Germans who want the European Central Bank to scale back the current stimulus plan more than the reduction to €60bn a month that we'll be seeing from April.

"This sharp fall is likely to put on ice any prospect of further talk of a taper this side of the French elections at the very least."

Turning to the US, in addition to sterling, the dollar lost ground on the euro, loonie, kiwi and yen, but rose against the aussie and, like most other currencies, the rand.

US stocks were little changed on Friday after data revealed that inflation hit the Federal Reserve's target for the first time in nearly five years, turning the focus to interest rates.

The US personal consumption expenditure (PCE) deflator rose to 2.1% year-on-year in February, above the Fed's 2% target for the first time since April 2012.

Oanda senior market Craig Erlam said the PCE reading would "surely increase the possibility of a rate hike in June, especially with the Fed having to consider the possibility of substantial fiscal stimulus towards the end of the year".

New York Fed president William Dudley told Bloomberg earlier that "a couple more hikes this year seems reasonable" and if the US economy was stronger than expected then the Fed could "do a little more, and if it's weaker than we expect, we could do a little less".

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