Euro Fatigue Helps Pound to Rise to Highest Since France Vote

  • Sterling stays near $1.30 before BOE meeting on Thursday
  • Dollar-yen calls lose traction on North Korea, Comey headlines

UBS' Weber Sees More Volatility for Europe

The euro’s failure to rise above $1.09 provided momentum for the pound to reach the highest levels versus the common currency since the first round of the French presidential elections.

The euro has stayed below the $1.10 level broken on Monday given a lack of fresh catalysts, creating upside fatigue for euro-bulls who are preferring to fade dips rather than chase price action higher, according to foreign-exchange traders in Europe. As the pound found fresh buying interest across the board ahead of the Bank of England’s Super Thursday, stops below 0.8400 versus the euro were triggered, said the traders, who asked not to be identified as they weren’t authorized to speak publicly.

The common currency dropped to its weakest level versus sterling since April 21, as bullish sentiment after the France vote evaporated and the market speculated that more BOE members could dissent on holding U.K. interest rates. Technical charts suggested bearish momentum.

Against the dollar the pound peaked at $1.2988 only to drop sharply near to its open level of the day, as leveraged short-term accounts had their intraday stops below $1.2950 filled, a Europe-based trader said. Stops entries lurk above $1.3000 and a rise above that psychological level could see substantial follow through.

  • The euro was set to snap a two-day drop and then nosedived to a 1.0859 low as of 11:05 a.m. London time as large bidding interest only lies within 1.0830-1.0850. Some hedge funds are now also looking to fade a move within 1.1000-20: trader
  • The pound traded 0.1% up at $1.2950 after a high of $1.2988; EUR/GBP fell 0.2% to 0.8389
  • The yen traded little changed at 113.88 as it pared gains of as much as 0.3%; USD/JPY lost momentum following renewed geopolitical concerns and an unexpected move by Donald Trump
    • Sky reported that North Korea’s U.K. ambassador said the country will proceed with another nuclear test while Trump’s decision to fire FBI director James Comey faced scrutiny from Democrats and Republicans alike
    • Fed’s Kaplan comments that inflation pressures are muted, while reiterating his view of two more hikes this year, didn’t give any help to dollar-bulls; one-week risk reversals in USD/JPY failed to move above par as upside bets lost traction
  • Kiwi led gains among G-10 peers yet needs to move above its 21-DMA, currently at 0.6947, that has capped the pair in the last two weeks in order to signal that a short-term bottom on its May 4 low at 0.6840 is in place
  • The krone was the main laggard, hitting its lowest level in almost three weeks versus the greenback after Deputy Governor Cecilia Skingsley’s reminder to markets that Riksbank is keeping an eye on SEK appreciation
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