Selling Britain by the pound

Forex 5 minutes to read

Michael O’Neill

FX Trader, Loonieviews.net

Summary: Forex traders are no more impressed by UK PM Theresa May's latest efforts than were the leaders of the European Union, and sterling is on track to take the 'week's worst performer' title away from a languishing loonie.

FX traders see the UK as chopped liver and are selling it by the pound. At one point this week, GBPUSD was down 2.3% from peak to trough as the UK’s Brexit plan took a turn for the worse. The European Union’s decision to deny Prime Minister Theresa May’s request for a three-month extension to Article 50 in favour of a May 22 end date precipitated the plunge. Even after the Queen’s currency climbed from the low to 1.3195 today, it is still on track to finish the week as the worst-performing currency.

The Canadian dollar takes the silver medal. It lost 0.52% (as of 13:30 GMT) since last Friday’s close and turned the short-term technical outlook to bullish. January Retail Sales fell 0.3%, a nasty surprise for those expecting a 0.4% increase. Statistics Canada blamed the drop on lower sales of motor vehicles and parts. USDCAD jumped to 1.3425 from 1.3395 on the news but quickly retreated, in part because of slightly better than expected inflation data. February CPI rose 1.5%, year-on-year, and rose 2.1% excluding gasoline prices.

Canadian inflation — Source: Statistics Canada

Wall Street is jittery. The Dow Jones Industrial Average opened with a drop of over 100 points, suggesting it will close with a loss for the week. The S&P 500 is in the same boat, but the Nasdaq is hanging on to small gains since Monday. Arguably, the price action is just noise with traders weighing global growth concerns against dovish Federal Reserve policy.

Next week may get off to a slow start and then start building momentum into month-end. The UK governments third attempt to get May’s Brexit plan approved by Parliament next week headlines what otherwise would be a fairly dull week, at least until Friday.

The Reserve Bank of New Zealand monetary policy meeting next Wednesday shouldn’t offer any surprises. It is widely expected to keep interest rates unchanged at 1.75% while following the Federal Open Market Committee’s lead and echoing concerns about global growth and trade. US Q4 GDP data on Wednesday and Chicago PMI and Michigan Consumer Sentiment on Friday are the key American economic reports for the week. It is also year-end in Japan, where USDJPY tends to trade with a negative bias due to Japan repatriating offshore assets.

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