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FX round-up: Sterling falls ahead of Article 50 as US dollar drops after jobs data

By Andrew Schonberg

Date: Friday 10 Mar 2017

FX round-up: Sterling falls ahead of Article 50 as US dollar drops after jobs data

(ShareCast News) - Sterling turned in a grim performance Friday as nervy traders anticipate UK will trigger Article 50 of the Lisbon Treaty next week, with mediocre output data failing to inspire.
At about 17:07 GMT, sterling was down 0.06% to $1.2158, but fell a larger order of 0.89% to be at €1.1399. The dollar-spot index slipped 0.4% to $101.440.

The British unit -- which has suffered a humiliating fall since UK's Brexit vote last year -- was also lower on the aussie, loonie, kiwi and rand, but managed a limp rise on the yen.

Jasper Lawler, senior market analyst at London Capital Group, said sterling found little support from the US dollar, which retreated after that country's non-farm payrolls (NFP) data.

Earlier in the session, UK's manufacturing output for January fell more than expected, but industrial output was broadly in line, and that for construction beat forecasts.

UK's trade deficit in goods and services was unchanged at £2.0bn for January, versus a consensus for a deficit of £3.1bn.

"It wouldn't be surprising to see a knee-jerk reaction lower in sterling once Article 50 is triggered, but since the announcement itself will bring no new information, we'd expect a recovery not long after," opined Lawler.

He reckoned the biggest near-term risk to PM Theresa May triggering Article 50 would be an accompanying request from the SNP's Nicola Sturgeon for a Scottish referendum.

This Friday afternoon it was the US NFP centre-stage, with its solid numbers keeping the Fed on track to lift interest rates next Wednesday. Its course thereafter was less certain.

February's non-farm payroll rose to 238,000 from 227,000 the previous month and above the 200,000 consensus forecast. The net revision was 9,000.

Lawler opined that the US job growth made a rate hike at next week's Fed meeting a near certainty, in a view shared by other market watchers.

Naeem Aslam, chief market analyst at ThinkMarkets UK, chimed in with a note of caution.

"Going forward (beyond March), it is the path of future rate hikes which is of significant importance, and that will drive the dollar," said Aslam.

FXTM research analyst Lukman Otunuga said the dollar's depreciation after the NFP had nothing to do with a change in sentiment, but rather potential profit-taking ahead of the weekend.

"The technical correction may come to an abrupt end with bulls back in action when the Federal Reserve raises US interest rates next week," said Otunuga.

The dollar was down on the aussie, loonie, kiwi and rand, but tiptoed up on the yen. As with sterling, the US unit's greatest fall was against the euro.

"The euro got some early support from a bigger than expected rise in German wholesale prices," said Lawler.

"The subtle but significant admission from ECB president Mario Draghi yesterday that monetary stimulus is unlikely to increase has caused considerable euro short-covering," he added.

"The widely held view that the euro will see parity to the dollar is in our view unlikely this year."

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