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British Pound May Suffer Deeper Losses as PM May Talks Brexit

British Pound May Suffer Deeper Losses as PM May Talks Brexit

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • British Pound at risk as panel questions PM May on Brexit strategy
  • Japanese Yen gains as Bank of Japan keeps status-quo policy stance
  • US Dollar gains, Kiwi underperforms on hawkish Yellen comments

Brexit jitters may take center stage in otherwise quiet European trade as UK Prime Minister Theresa May is questioned by the House of Commons Liaison Committee on her plans for departure from the European Union. The issue of access to the EU single market has always been a touchy subject with investors. It may prove to be even more so this time around after Scotland’s First Minister Nicola Sturgeon threatened to hold another independence referendum in the event of a “hard Brexit” scenario. A vague position on this front seems likely to weigh on the British Pound.

The Japanese Yen underperformed in Asian trade after the Bank of Japan opted to keep its monetary policy stance unchanged at its final policy meeting of 2016. Traders seemed to have suspected that the currency’s rapid plunge to 8-month lows since the US presidential election may improve inflation prospects sufficiently-enough to at least discuss scaling back stimulus efforts. Governor Haruhiko Kuroda would have none if however, saying the central bank is still far away from its price target and dismissing calls to rethink its posture as premature.

The New Zealand Dollar fell alongside US 2-year Treasury bond futures, suggesting the hawkish shift in the markets’ 2017 Fed policy outlook may have captured the spotlight anew. Indeed, the US Dollar traded broadly higher against its major counterparts. The Kiwi’s outsized losses among the non-Yen majors may reflect the currency’s elevated sensitivity to an adverse shift in rate spreads considering it is the highest yielder in the G10 FX space. In fact, the correlation between NZD/USD and the front-end US bond future is now 0.66 on rolling 20-day studies.

As for the catalyst pushing the investors’ focus back to Fed rate hike speculation, a speech from Chair Janet Yellen seems to have been the culprit. She said the US jobs market is the strongest it has been in nearly a decade and noted signs that wage growth is picking up in a commencement speech at the University of Baltimore. Yellen added that economic gains are finally raising most living standards.

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Asia Session

GMTCCYEVENTACTEXPPREV
21:45NZDFood Prices (MoM) (NOV)-0.1%--0.8%
0:30AUDRBA Dec. Meeting Minutes
1:00CNYSwift Global Payments CNY (NOV)2.0%-1.7%
2:51JPYBOJ Policy Rate -0.10%-0.10%-0.10%
5:30JPYNationwide Dept Sales (YoY) (NOV)-2.4%--3.9%
5:30JPYTokyo Dept Store Sales (YoY) (NOV)-1.4%--4.4%
6:30JPYBOJ Governor Kuroda Gives Press Conference ---

European Session

GMTCCYEVENTEXP/ACTPREVIMPACT
7:00CHFTrade Balance (NOV)3.64b (A)2.66bLow
7:00CHFExports Real (MoM) (NOV)-0.4% (A)-6.7%Low
7:00CHFImports Real (MoM) (NOV)-4.2% (A)2.6%Low
7:00EURGerman PPI (MoM) (NOV)0.3% (A)0.7%Low
7:00EURGerman PPI (YoY) (NOV)0.1% (A)-0.4%Low
7:00JPYConvenience Store Sales (YoY) (NOV)0.5% (A)0.2%Low
9:00EUREurozone ECB Current Account SA (OCT)28.4b (A)27.7bLow
9:00EUREurozone Current Account NSA (OCT)32.8b (A)32.2bLow
11:00GBPCBI Retailing Reported Sales (DEC)2026Low
11:00GBPCBI Total Dist. Reported Sales (DEC)-34Low
14:00GBPUK’s May Speaks to Parliament Brexit Panel--Medium

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EUR/USD1.02511.03381.03701.04251.04571.05121.0599
GBP/USD1.21221.22701.23331.24181.24811.25661.2714

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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