Pound Slides to Seven-Week Low Versus Dollar as RBA Buoys Aussie

  • Currency volatility extends 2017 declines even as risks loom
  • Euro seen confined by option expiries; Norway’s krone rallies

Two Reasons Why Sterling Could Go Lower

The pound extended losses amid renewed political uncertainty over the U.K.’s plan to exit the European Union, while the dollar mostly traded in a small range ahead of tier-one economic data expected later this week.

Sterling breached key technical support at 1.2200 per dollar for the first time since Jan. 18 amid concern Prime Minister Theresa May could face another setback in her effort to trigger Brexit as lawmakers demand more power to shape the final deal she reaches with the EU. In addition, the pound sentiment was also weakened by data showing the pace of U.K. annual house-price growth slowed, adding weight to predictions of an economic slowdown.

The Aussie gained after the Reserve Bank of Australia said the global economy has improved while local consumption growth was stronger. It pared gains thereafter as traders took note of the RBA’s warning over the negative effects of a strong currency.

Despite persistent Brexit uncertainties, upcoming euro-area elections and rising expectations for an imminent U.S. interest-rate increase, global currency volatility remains in its downward trajectory this year. Demand to own gamma for the short term remains relatively low, despite sporadic increases, according to traders in Europe.

  • The Bloomberg Dollar Spot Index erased its early drop as the euro failed to sustain its gains. Expiries rolling over Tuesday within 1.0575-1.0600 total EU3.2b and may anchor price action; should the pair manage to escape expiries gravity, a bearish technical development could weigh as the 21-DMA has now crossed the 55-DMA lower
    • Last time such a pattern emerged in October, EUR/USD dropped 3% within two weeks and 7.6% in less than three months
  • Cable weakness and breach of 1.2200 handle was partly due to cross price action; EUR/GBP touched its highest level since Jan. 19 at 0.8678 with the pair exhibiting a buy-the-dip approach by interbank names: traders
  • Norwegian krone is the main G-10 outperformer versus greenback, rising as much as 0.7% after central bank regional network survey signaled downside risks are easing. NOK/SEK snaps a five-day decline to pare large part of Monday’s losses
  • AUD/USD pares gain to trade +0.2% at 0.7597; kiwi slump extends to 0.6973, lowest in almost two months as NZD/USD drops an eighth day
  • Volumes in USD/JPY are muted during London session, with the pair trading near 114.00, staying within its narrowest intraday range in five months
  • Some information comes from FX traders familiar with the transactions who asked not to be identified because they are not authorized to speak publicly
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