FX Roundup: Pound slips as ‘Super Thursday’ approaches

The pound sterling headed lower against a basket of global currencies on Tuesday, with the Bank of England expected to reveal a largely dovish stance later in the week and ‘Brexit’ anxiety weighing on investor sentiment.

Earlier in the day, publication of a draft deal on UK-European Union negotiations brought the possibility of a June referendum on the country’s membership of the Union forward.

At 1553 GMT, pound was down 0.45% versus the dollar changing hands at $1.4368. Concurrently, the British currency also fell against the euro and Swiss franc by 0.67% and 0.42% exchanging at €1.3165 and CHF1.4660 respectively.

Vicky Redwood, chief UK economist at Capital Economics, said, “We don’t think that the UK’s attractiveness as a place to invest and do business would be dented much even if the UK failed to negotiate a favourable agreement on, for example, free trade.

“Indeed, we have argued before how both the purported benefits and losses from a Brexit are overstated, with the long-term impact on the economy of a Brexit unlikely to be big in either direction.”

Meanwhile, Bank of England is largely expected to reveal a dovish stance when it publishes its latest interest rates decision, minutes of its monetary policy meeting and the February quarterly inflation report on Thursday.

Elsewhere, the dollar fell 0.54% against the yen changing hands at JPY120.34. Continuing with major crosses, the euro registered a 0.10% rise versus the US currency to change hands at $1.0897, while the Swiss franc was broadly flat with a dollar fetching CHF1.0198.

Kit Juckes, head of forex at Societe Generale, said, “The impact of a shift to negative rates in Japan is likely to have far less impact on the yen than the ECB's move had on the Euro, partly because the yen's valuation is so stretched and partly because Japanese investors have long since embraced the idea of looking for higher yields abroad.

“The limiting factor behind Japanese capital outflows (and hence a weaker currency) is the lack of attractive foreign destinations for their money. The yen remains a funding currency and upside in USD/JPY remains limited.”

The dollar rose against commodity linked currency crosses with the oil price struggling to hold on to gains made over the previous week. The Australian dollar was down 0.79% against its US counterpart exchanging at US$0.7058 as the Reserve Bank of Australia held firm on interest rates but kept the door open to further cuts in wake of the Bank of Japan’s move to introduce negative interest rates.

The New Zealand dollar also fell 0.81% changing hands at US$0.6495. The greenback rose 0.72% against the Canadian dollar exchanging at CAD$1.4048.

Finally, Latin American currencies also slipped against the dollar, with greenback trading 1.42% higher against the Mexican peso changing hands at MXN18.4926, along with upticks of 1.82%, 0.20% and 0.87% against the Colombian peso, Chilean peso and Brazilian Real.