Not a day goes by that the Brexit story doesn’t keep sterling traders on their toes, with the British pound-U.S. dollar pair slipping Tuesday, amid new voices criticizing U.K. Prime Minister Theresa May’s plan for abandoning the European Union.
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Cable, as the British pound-U.S. dollar pair
is known, was under renewed pressure. May who reached a final agreement over the weekend with EU leaders on the terms of a deal governing the U.K.’s relationship with the bloc after it formally departs in March, must now steer the plan through parliament.
Former defense secretary Michael Fallon attacked May’s deal as the “worst of all worlds”, worrying about the future of U.K. trade in an interview with BBC Radio 4, adding that unless the House of Commons was convinced that trade deals with the rest of the world were possible, the deal was “doomed.” The remarks by the former May loyalist were seen casting further doubt on her ability to win approval of the deal.
Sterling was down at $1.2732 early Tuesday, compared with $1.2811 late Monday in New York.
“As we’ve been noting for a while, the $1.27 figure is a key support in the pair and seems to represent the Maginot between the hope of some workable compromise and the threat of a hard Brexit,” wrote Boris Schlossberg, managing director of FX strategy at BK Asset Management, referring to the Maginot line—a defensive fortification—constructed in northeastern France during in the 1930s to thwart an invasion by Germany.
“For now the market continues to hold above that level as the consensus view is that some sort of soft exit will be worked out, but with U.k. parliament appearing ready to vote down the deal and with no credible alternatives left, the prospect of a hard Brexit has become uncomfortably real as the deadline looms,” Schlossberg said.
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Meanwhile, dollar traders closely watched a speech by Federal Reserve Vice Chairman Richard Clarida.
While Clarida sounded somewhat dovish — saying the central bank was getting closer to a neutral rate, and that monetary policy should for now be aimed at sustaining growth — the buck remained modestly upbeat and later extended its gains.
Just two weeks ago, Clarida’s dovish words led to a dip in the greenback. Fed Chairman Jerome Powell is due to deliver a speech on Wednesday.
“FX investors love narratives and buzzwords; the new one is ‘pause’,” said Stephen Gallo, European head of FX strategy at BMO. Powell could say the Fed will pause, which would be considered dovish, or won’t pause, which would be read as hawkish.
The middle option would likely be seen as neutral “Fed officials must be conscious of the degree to which hawkishness and dollar strength are able to feed declining levels of risk appetite, so the ‘neutral’ outcome is probably the most likely,” Gallo said.
Separately, economic data early in the session showed that while U.S. consumers remained relatively sanguine in November, consumer-confidence edged lower from an 18-year high in October.
The ICE U.S. Dollar Index
was modestly higher, rising 0.3% to 97.386. Its main rival, the euro
held the balance, slipping 0.3% to $1.1292.
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Anneken Tappe is a markets reporter for MarketWatch. She is based in New York.
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