Dollar Recovery Undermines GBP/USD, Brexit Concerns Also Curb Support
London (Aug 31) Choppy trading is liable to dominate the remainder of Thursday with GBP/USD unlikely to make much headway.
The latest UK consumer confidence survey recorded a slight improvement to -10 for August from -12 previously.
Sterling lost ground in early Europe on Thursday with some selling interest on rallies given an underlying lack of confidence in the UK outlook while the Euro was also able to find support on dips.
Bank of England external MPC member Saunders continued to push for modest increase in interest rates given that there had been a persistent overshoot in inflation and diminishing spare capacity in the economy. The overall impact was limited given that Saunders had previously backed an increase in rates and Sterling was unable to gain any sustained traction from the remarks.
A firmer tone surrounding risk appetite provided some support to Sterling, although Euro and dollar moves continued to dominate.
The dollar gained further respite against major currencies while EUR/USD retreated to lows below 1.1850 after source reports from the ECB that the central bank is increasingly concerned over Euro strength. Currency gains could increase the chances of a delay to the bond-purchase decision or trigger a more gradual tapering of purchases.
In the Brexit press conference, there was a relatively downbeat tone from chief EU negotiator Barnier. There were comments that the EU is not flexible while there was criticism of the UK position over its financial obligations and Barnier stated that there was little chance of starting future trade talks.
Sterling edged weaker on a trade-weighted basis and GBP/USD dipped to lows around 1.2860 ahead of the US open.
Month-end position adjustment will be an important factor during the day with the potential for notably choppy trading surrounding the London fix. The UK currency is often vulnerable to selling as European central banks buy Euros for commercial purposes, although volatility is likely to be the main feature.
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