The British pound stabilized above 1.27 after touching a fresh low at 1.2635 on Friday. It seems that sterling at least temporarily reached bottom after Prime Minister Theresa May’s Conservative Party unexpectedly lost the majority in Thursday’s U.K. election. This makes Brexit negotiations with the EU more difficult, leading to new complications in the U.K. The Bank of England will decide on monetary policy on Thursday but BoE policy makers are in no position to alter their course in the near-term. Sterling traders shall pay attention to the U.K. Consumer Price Index, scheduled for release on Tuesday. As long as GBP/USD trades above 1.27, we anticipate some upward movements towards 1.2850 and possibly even 1.2950. A significant decline below 1.27 could however open the door for further losses towards 1.26 and 1.24.
The highly anticipated FOMC decision on Wednesday is expected to end with a rate hike. How the U.S. dollar will trade, hinges however on the Fed forecasts for the second half of 2017. If the Federal Reserve calls for three rate hikes this year despite recent disappointing U.S. economic data outcomes, the greenback could strengthen. However, given the low probability the Fed will embark on an aggressive tightening cycle, traders should prepare for a weakening dollar, especially ahead of U.S. inflation data due to be released on Wednesday.
The EUR/USD traded little changed between 1.1215 and 1.1165. Technically, the recent sideways trading range is still unbroken and as long as there is no breakout either above 1.1285 or below 1.11, there is nothing new to report.
From the Eurozone, the most important piece of economic data will be the German ZEW survey scheduled for release on Tuesday morning.
With no major market drivers and given the typical seasonal lull in market activity, we do not expect exaggerated currency moves.
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