FX round-up: Sterling rises ahead of Fed, amid Brexit, Europe elections nerves
Sterling enjoyed a chipper performance on most key crosses on Wednesday, apparently shrugging off immediate Brexit and European election concerns as traders look to the US Federal Reserve's expected interest-rate hike at 18:00 GMT.
At 17:03 GMT, sterling was up 0.56% to $1.2221, and ahead 0.21% to €1.1485. The British currency was also up against the aussie, loonie and yen, but slipped on the kiwi and rand. In contrast, the dollar-spot index was down 0.24% to $101.460.
Markets have already priced in an almost certain 25-basis-points rate hike by the Fed, with traders now pondering the nature of the Federal Open Market Committee's statement.
This ahead forecasts for the Bank of England to leave its benchmark rate unmoved on Thursday.
"A less hawkish Fed tonight could spike a rally for sterling and the euro, causing some of the most recent outperformance to reverse," said IG chief market analyst Chris Beauchamp.
London Capital Group senior market analyst Jasper Lawler said that with sterling's general move towards $1.20 two stark views on the currency had been brought to the fore.
These were that Brexit was priced in and "we are carving out a bottom," and that negotiations on quitting the EU would "show the true magnitude of the problem and more downside is to come."
HL Currency Service senior analyst Chris Saint put some of sterling's gain to a YouGov/Times poll that suggested Scottish voters favoured remaining in the UK by a 57% to 43% margin.
Mixed UK employment data on Wednesday was cautiously received. While the jobless rate had fallen to its lowest since 1975, wage growth continued to slow.
In other currency news, the euro was under pressure as Netherlands' elections got underway, with a result expected later this evening.
"The uncertainty gravitating around the elections in Europe have left the Euro vulnerable to heavy losses this week," said FXTM research analyst Lukman Otunuga.
"Euro weakness has become a key theme with further downside expected as fears heighten over Eurosceptic parties destabilising the unity of the European Union," he added.
Otunuga noted the EURUSD had struggled to maintain gains on the daily charts this week with prices hovering around $1.0620.
The dollar was down against key currencies the euro, aussie, loonie, kiwi, rand and yen, most of which was linked to market caution ahead of the Fed.
"A hawkish tone in this evening's FOMC press conference coupled with a potential upwards shift in the 'dot plot' could reignite the bull rally as speculations heighten over the Federal Reserve raising US rates on repeated occasions in 2017," said Otunuga.
"With the improving sentiment towards the US economy supporting the greenback, dollar (spot) index bulls could be back in action once $101.50 has been properly conquered.
On the economic news front, US consumer-price index and retail sales data was in line with expectations, with the New York Empire State manufacturing and National Association of Home Builders/Wells Fargo housing market index both ahead of views.