Sterling Steadies After Brexit Blow; Dollar Drifts Lower Pre-Fed

Tuesday,   19-Mar-2019   01:52 PM (IST)

The British pound is opening Tuesday on a firmer footing after losing nearly 1% against the dollar and euro on the latest outbreak of Brexit-related volatility. Sterling had slid after Prime Minister Theresa May’s plan to force another vote on her EU Withdrawal Agreement was struck down for procedural reasons by the Speaker of the House of Commons John Bercow. But at the same time, advocates of a ‘no-deal Brexit’ also believe that Bercow’s action has made it more likely that the U.K. will leave the EU at the end of next week without any transitional arrangements, by making it effectively impossible for May to ask the EU for a short extension to the March 29 deadline at a summit later this week. The drama continues to overshadow and distort economic numbers coming out of the U.K., but sterling may still react to the monthly labor market review due at 05:30 ET (09:30 GMT). Any increase in the rate of wage growth – already running at its fastest in a decade – will make an interest rate hike from the Bank of England more likely if the country can avoid a no-deal Brexit. At 03:00 AM ET (0800 GMT), the pound was at 1.3274 against the dollar, having fallen below 1.32 for the first time in nearly a week after Bercow’s announcement. Against the euro, it had recovered less and was at 1.1695, less than a quarter of a cent off Monday’s low. The dollar itself is still drifting lower ahead of the Federal Reserve’s Federal Open Market Committee meeting, which begins later Tuesday and concludes Wednesday. A spate of weak economic data has driven 10-year Treasury yields to within 4 basis points of their lows for 2019, reducing the greenback’s attractiveness. The U.S. Dollar Index, which tracks it against a basket of six major currencies, was testing new six-week lows at 95.86. Overnight, it had inched slightly lower against the yen but gained against the Aussie, as another set of weak housing market data in Australia added to pessimism about the local economic outlook.