FX round-up: Sterling drifts through Friday, uncertain of the path forward

Digital Look Sharecast | 16 Jun, 2017 19:45 | | |

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Sterling drifted through mildly choppy Friday trade, uncertain of where to go next as the market continues to assess the more hawkish Bank of England and US Federal Reserve.

At 17:24 BST, the sterling was up 0.2% to $1.2783. It was down 0.17% to €1.1426. Otherwise it was lower on the aussie, loonie, kiwi and rand, but up a bit on the yen.

The British unit got a shove higher on Thursday, when BoE's policymakers were more split than expected on whether to lift the benchmark rate -- 5-3 favoured holding, versus an expected 7-1 -- in favour of raising rates.

"At the end of a busy week of economic releases and political developments in the UK, the pound remains uncertain as to where the path of least resistance lies going forward," said David Cheetham, chief market analyst at XTB.

The currency continued sensitive to economic data, Brexit, the delicate UK political situation thanks to a hung parliament and the spectre of a potential rate rise by the BoE.

"The currency is seeing a narrowing of its trading range against most of its major FX peers and there is a growing sense that it is coiling ahead of the next large move," said Cheetham.

Craig Erlam, senior market analyst at Oanda, noted that sterling's gain on the dollar was capped at about $1.28.

This, he said, reflected the fact that "downside pressure remains on the currency as a result of all the political uncertainty which comes at the worst possible time for the country."

David Madden, market analyst at CMC Markets UK, added that the British currency was stuck in narrow range trading on Friday.

"It's as if traders are wondering which central bank (either the BoE or the Fed) to pay more attention to," pondered Madden.

"The pound is being helped by improved political outlook in the UK, and traders are looking forward to the Queens speech next week."

Meanwhile, the dollar-spot index was down 0.26% to $97.182. The US currency was otherwise down on the euro, aussie, loonie, kiwi, rand and yen.

"The EUR/USD is creeping higher after the Eurozone reported an inflation of 1.4% for May, meeting market expectations," said Madden.

"The core inflation was 0.9%, and that also was in line with the market consensus. The single currency is making up for lost ground due to the hawkish stance by the Fed on Wednesday.

"The European Central Bank chief, Mario Draghi, would like to keep the euro lower, so I’m sure he was happy the Fed and the Bank of England during the week."

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