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FX round-up: Pound weakens ahead of Lords vote, MPC

By Alexander Bueso

Date: Monday 18 Jun 2018

FX round-up: Pound weakens ahead of Lords vote, MPC

(Sharecast News) - Sterling started the week off on a weak note, ahead of a Lords vote on Tory rebels' demands for a 'meaningful vote' in Parliament in case of a 'no-deal' Brexit.
Indeed, the impasse over the Irish border and the political disarray in Westminster had led some officials on both sides of the Channel to conclude that negotiations were unlikely to reach any kind of conclusion until year end.

Against that backdrop, cable was 0.29% lower as of 2053 BST at 1.32040, having plumbed an intraday low of 1.32402.

Traders were also waiting on the Monetary Policy Committee's latest decision on rates, on Thursday, even if no change was expected in Bank Rate.

"We expect the MPC to keep policy on hold and shy away from comments about market expectations of future rate hikes. But in reaffirming its view that the 2018Q1 growth slowdown was temporary, markets might interpret that as a signal that an August hike is more likely. We expect a 7-2 vote, but risks of a 6-3 vote should not be discounted," analysts at TD Securities told clients.

Analysts at Oxford Economics were of a different opinion however.

"But recent data have been mixed on that score, leaving it almost certain that the MPC will leave policy unchanged this month, instead using the meeting to signal its future intentions. We still expect that signalling to point to a hike in rates in August, although downside risks to that prediction have increased.

"Meanwhile, the Chancellor announced that Professor Jonathan Haskel will replace Mr McCafferty when the latter steps down from the MPC in September. Professor Haskel's views on the economy's supply-side and the economic outlook suggest that he may take a more dovish view on monetary policy than the departing external member," Oxford Economics said.

Notably, the pound was trading 0.43% lower versus the euro to 1.1396 - and was just off its intra-day lows - despite the political tensions in Berlin after government coalition partner CSU threw down the gauntlet at Chancellor Angela Merkel over illegal immigration.

Nevertheless, analysts, including those at Barclays and Rabobank, were confident that the CSU was not about to break ranks with its senior coalition partner, the CDU, given the risk of surprises if it unwittingly brought about snap elections.



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