FX round-up: Sterling mixed as UK begins negotiations for so-called Brexit 'wonderland'

19 June 2017

(ShareCast News) - Sterling was mixed on major crosses as the UK at last disappeared down the burrow of Brexit negotiations in hopes it will emerge in a non-EU wonderland further down the track.
The opening divorce talks were in Brussels today, with negotiators David Davis for the UK and Michael Barnier for the EU exchanging pleasantries publicly.

At 17:07 BST, sterling was down 0.32% to $1.2742, while it rose 0.03% to €1.1417. The British currency was also down on the aussie, loonie and kiwi, but up on the rand and yen.

"With political instability in Westminster placing the UK in a vulnerable position and Conservatives in a weaker position following the election, the outcome of the Brexit talks may heavily depend on what Europe wants," said <em>FXTM</em> research analyst Lukman Otunuga.

"Although the prospect of a soft Brexit has the ability to support sterling, I feel the currency remains vulnerable to further downside amid the confusion and ongoing uncertainty that Brexit presents."

Otunuga said that, from a technical standpoint, GBPUSD remained under pressure on the daily charts.

"Repeated weakness below the pivotal $1.2775 should encourage bears to target $1.2600," he said.

David Madden, market analyst at <em>CMC Markets UK</em>, continued: "As if the pound didn't already have enough to contend with since with the uncertainty hanging over Downing Street, today is the first day of Brexit talks.

"We are nearly one year on since the UK voted to leave the EU and Brexit Secretary, David Davis is in Brussels today kicking off the talks."

The dollar performed relatively well on Monday. The dollar-spot index rose 0.28% to $97.432. The greenback was up on the euro, aussie, kiwi, rand and yen, but down on the loonie.

Madden commented that the dollar had moved moved higher after New York Fed President William Dudley said he was happy with the state of the US economy, and that he was not paying too much attention to what the US government bond yields were showing.

"The EUR/USD welcomed the news that (French President) Emmanuel Macron's party, La Republique En Marche, obtained a majority in the national assembly.

"The party was poised to do well in the election, and now that they have secured their majority it will bring confidence to France and the Eurozone.

"The single currency was also hit by the commentary from William Dudley, and the greenback has the upper hand today."

Otunuga opined that the dollar had stabilised against a basket of currencies on Monday after tumbling on disappointing US economic data last week.

"This is a week packed with comments by top Federal Reserve officials and participants may use this opportunity to seek for further clues on future rate hikes."

During the parliamentary debate on Brexit some months ago, former Tory Chancellor Ken Clarke likened visions of a post-Brexit future as a "wonderland" fantasy, referring to Lewis Carroll's book about Alice's adventures.

"Apparently you follow the rabbit down the hole and you emerge in a wonderland, where suddenly countries around the world are queuing up with trading advantages and access to their markets," said Clarke at the time.