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FX round-up: Pound holds up despite bid for the dollar, weak CPI

By Alexander Bueso

Date: Tuesday 20 Mar 2018

FX round-up: Pound holds up despite bid for the dollar, weak CPI

(ShareCast News) - Sterling was well-behaved against the backdrop of an up day for the US dollar, as investors waited on policy announcements from the US Federal Reserve and the Bank of England scheduled for over the next two days.
By 1931 GMT cable was changing hands only 0.14% lower at 1.40046, although it was trading on the lower end of the day's trading range, having hit an intraday high at 1.4067.

That was despite a 0.68% move to the upside on the US dollar spot index, ahead of Wednesday's US central bank policy meeting, to just past the upper part of the sideways range in which it had been immersed since the end of February.

The pound was also overcoming a weaker than expected print on consumer price inflation, with the ONS having reported a 2.7% year-on-year rate of gains for the month of February, following a print of 3.0% for January (consensus: 2.8%).

Analysts were left a tad dividend on whether Tuesday's release might be reflected in Thursday's message from the Monetary Policy Committee, especially as pertained to the need for another hike in Bank Rate as soon as May's MPC.

In parallel, the core rate of CPI slipped by three tenths of a percentage point to 2.4% (consensus: 2.5%).

Nevertheless, for economists at Barclays Research: "The February print supported our view that underlying pressures peaked in January. However, given that a good portion of the expected downside surprise materialised in core was concentrated within volatile components that are likely to rebound sooner or later, we do not infer from the February decline a potential future monthly pace of correction for core inflation.

"Rather, we think that stabilisation around 2.0% (on average) is likely for the reminder of the year."

Dollar/yen was higher by 0.37% to 106.488 even as the strategists at BoA-ML reported that, as per the results of their latest survey of fund managers, and for the first time since 2009, a majority of managers did not expect to see the Japanese currency weaken over the enext 12 months.

In parallel, euro/dollar was weaker by 0.7% to 1.22483 on the back of a weaker-than-expected reading on the ZEW institute's economic confidence index for Germany in the month of March.

According to Michael Hewson at CMC Markets UK, a push below 1.2250 on the euro might pave the way towards the 1.2160 area as the next stop.

As for cable, a successful close atop 1.3980 might open the way higher towards 1.4250, Hewson said.

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