Sterling declines sharply as the Brexit circus continues
The USD declined against the key peers ahead of the Federal Reserve decision, which is expected later today. The currency declined because traders expect the Fed to release a relatively dovish statement in a bid to calm market jitters. Apart from the headline interest rates number, traders will want to know about the Fed’s decision to shrink its balance sheet, its opinion about the state of the US economy, and the dot plot. The dot plot is a graphical representation of the projected rate hikes or rate cuts by the Fed. There is a likelihood that the plot will show that there will be no rate hike this year. They will also want to get the Fed’s inflation target for the year.
The sterling declined today as the complexities surrounding Brexit increased. This happened as Theresa May struggled to find a solution ahead of the planned March 29 exit. She has been unable to have a Brexit deal passed in parliament. In recent days, the European leaders such as Jean-Claude Juncker have warned that the UK will not be granted the extension it needs. This is because they are afraid of the prolonged uncertainties this will provide to them. In a statement, Downing Street said that the premier will ask for a short three-month delay. Analysts are pessimistic about what will happen during those three months. Meanwhile, in the United States, Donald Trump Junior published an opinion piece criticizing the UK Prime Minister for not following his father’s advice.
On the economic data side, the UK released mixed inflation numbers. The headline CPI number rose by an annualized rate of 1.9%, which was higher than the consensus estimates of 1.8%. The core CPI however missed estimates. On a YoY basis, the core CPI rose by 1.8%, which was lower than the expected 1.9%. The core CPI excludes the volatile food and energy prices. The house price index rose by 1.7%, which was lower than the expected 2.3% while the PPI input rose by 3.7%, lower than the expected 4.3%.
US stocks were relatively unchanged in pre-market trading. The Dow and S&P 500 futures gained by 13 and 0.25 points respectively. This is as traders waited for the data and press conference from the Fed. Another reason was that Fedex declined by almost 7% as traders reacted to its profit warning. The company, together with other shippers like DHL, Maersk, and UPS are viewed as barometers of the world economy. Another company that declined was Google, which received a $1.7 billion antitrust fine from the European Union.
The EUR/USD pair continued to move up ahead of the Fed interest rates decision. The pair has been on an upward trend since March 7. Today, it reached an intraday high of 1.1365, which was the highest level since March 4. On the hourly chart, this price is above the 100, 42, and 21-day moving averages while there have been no movements in the MACD. The pair has also formed a symmetrical triangular pattern, which is an indication that a breakout could happen later today.
After the sharp decline yesterday, the AUD/USD pair rose sharply today after it emerged that US and Chinese officials were close to a deal. The pair rose from a low of 0.7055 to a high of almost 0.7100. On the hourly chart, the pair is currently close to the upper band of the Bollinger Bands. The price is also above the upper band of the intraday Keltner channel. The pair could continue moving up to the 0.7110 level today but this could change after the Fed’s decision.
The GBP/USD pair declined today as the ongoing issues around Brexit continued. The pair reached an intraday low of 1.3147, which was the lowest level this week. On the four-hour chart, the pair is below the three-week and six-week moving averages. The current price is along the 23.6% Fibonacci Retracement level. The pair could continue moving lower to the 1.3100 level.