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Forex News

11/29/2017 17:32:17

FX round-up: Sterling surges on hopes of a divorce bill settlement

(ShareCast News) - Wednesday saw sterling managing to push higher against the dollar, boosted by optimism surround the divorce bill Britain has agreed to pay the EU in preparation for leaving the bloc.
The greenback managed to gain marginal ground against a basket of currencies with the dollar index trading 0.13% higher to 93.147 by 1707 GMT.

On the data front, the UK saw that net lending to individuals on a monthly basis was above expectations of £4.3 billion, to come in at £4.8 billion, while mortgage approvals came in as expected at 65,000.

The US received good news in the form of renewed hope that progress has been made on proposed tax reforms as well as hints of lighter banking regulations, as well as improving month on month pending home sales that beat expectations of 1.1% to come in at 3.5%.

In her testimony delivered in, current Fed chair Janet Yellen highlighted that improvements have been observed in the labour market as well as unemployment falling to 4.1% in October, down considerably since 2010 where it was closer to 10%.

Regarding future monetary policy, she said that, "additional gradual rate hikes would likely be appropriate over the next few years to sustain the economic expansion," depending on the economic outlook "as informed by incoming data."

The solid performance for stirling saw cable trade 0.65% up to 1.3426, just above 1.3422 where earlier resistance was seen (61.8% retracement from 20 September high).

"There is a lot of water that has to flow under this particular bridge before we see investors becoming optimistic about the pound in their portfolios," said Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets.

The Irish border issue still remains to be a key sticking point for Brexit talks moving ahead next month.

"If Dublin were to argue in December that the Brexit divorce discussions had not yet yielded sufficient progress, they could prevent talks moving forward," Kallum Pickering, senior UK economist at Berenberg, wrote in a note.

Against the euro, stirling managed to climb 0.54% to 1.1327, pushing off support in the 1.1152 area, as it did on 15 November.

Chief EU negotiator, Michel Barnier, speaking of the UK divorce bill and the Irish border issue, told the Berlin Security Conference, ""We are working really, really hard on these subjects," adding, "I hope that I can report that ... we have been able to negotiate a deal." Barnier is due to meet with British Prime Minister Theresa May and European Commission President Jean-Claude Juncker on 4 December.

EUR/USD was relatively unchainged on the day, managing to move only 0.11% higher to 1.1853 by 1715 GMT with support at 1.1824 and resisteance in the 1.1867 area.

Progress made on US tax legislation helped the dollar push higher against the Japanese yen on Wednesday, with the pair trading 0.31% firmer to 111.82, managing to power through resistance at 111.69.

"The dollar drew broad bids on strong consumer confidence data, Treasury yields holding firm and relief that the tax bill was passed by the Senate Budget Committee," said Shin Kadota, senior strategist at Barclays in Tokyo.

The currency market was unaffected by a North Korean missile test launch of an intercontinental ballistic missile (ICBM) that landed close to Japan. It was North Korea's first test launch since mid-September.

"The market appears to have gotten used to such events. How the United States responds, however, still bears watching," Kadota at Barclays said.

Woes for the Australian dollar continued on Wednesday as the Ausie fell 0.34% against it's US counterpart, to 0.7570, managing to break support at 0.7574.

The Aussie's appeal as a higher-yielding carry trade currency is fading as short-term Treasury yields tick higher.

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