Pound Drops on Brexit Trigger But Follow-Through May Be Limited

Talking Points:

• Brexit-inspired Pound down move may lack follow-through
• Aussie Dollar outperforms, rising alongside iron ore prices
• Markets may see tepid response to status-quo Fed comments

The British Pound underperformed in Asian trade as markets braced for the UK government to activate Article 50 of the Treaty of Lisbon, formally initially “Brexit” proceedings. Scope for follow-through seems limited however. Investors have known that this is coming for a long time and are unlikely to find anything materially novel in those expectations being validated, at least in the near term.

The Australian Dollar continued to edge higher, building on earlier gains. The currency posted the largest daily gain in a week against its US counterpart in the preceding session, soaring alongside iron ore prices. Along with coal, the steelmaking input is a top export commodity for Australia’s pivotal mining sector, making its price a major consideration shaping economic growth trends.

Looking ahead, a quiet European economic data docket will probably see the spotlight return to Fed commentary again. Speeches from Charles Evans, Eric Rosengren and John Williams of the central bank’s Chicago, Boston and San Francisco branches are on the schedule. Fiscal policy uncertainty has encouraged officials to stick close to the status quo however, so a volatility-stoking bombshell is probably unlikely.

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

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