FX round-up: Sterling mixed, prone to volatility as PM May heads Brussels

Sterling had a mixed Thursday as PM Theresa May went to Brussels to unveil to European leaders her allegedly more generous plans for the rights of EU citizens in the UK.

May's hopes of boosting her bargaining power at the Brexit table were dealt a humialiting blow in the UK general election. She has yet to form a government with the DUP.

It was against this backdrop that sterling, at about 17:20 BST, was down 0.04% to $1.2666, and up 0.12% to €1.1359. It was up on the aussie, but down on the loonie, kiwi, rand and yen.

Connor Campbell, financial analyst at Spreadex, said it was a quiet day for the pound, especially compared with the Carney/Haldane Cold War of the past two sessions.

"Interestingly there is a speech from departing MPC member, and leading hawk, Kristen Forbes this evening," said Campbell.

"The currency may be in for some more Bank of England drama on Friday morning."

David Madden, market analyst at CMC Markets UK, observed that the cable had turned lower despite impressive industrial order expectation figures from the UK.

The June report came in at 16, and the consensus was 7.

"The problem for the pound though, is that the Federal Reserve are aiming to keep tightening their monetary policy too," said Madden.

FXTM research analyst Lukman Otunuga summed it up when he opined that sterling volatility might intensify in the coming weeks as Brexit talks, the formation of a UK coalition government and an interest-rate tug of war between BoE policymakers got underway.

"Although the expectation of higher (UK) rates could support the British Pound, gains are likely to remain limited by UK political risk and uncertainty over Brexit," said Otunuga.

Turning to politics, Otunuga said while the outcome of May's meeting in Brussels remained another uncertainty, sellers could capitalize on this to drag sterling lower.

"From a technical standpoint, the GBPUSD currently respects a bearish channel on the daily charts. A breakdown below $1.2600 should encourage a further selloff towards $1.2450."

Finally, the dollar-spot index rose 0.01% to $97.566. It was down on most commodity currencies and the yen, but up on the aussie and euro.

"Price action currently suggests that dollar-bullish investors are lacking the inspiration to support prices further," said Otunuga.