FX Focus: Brexit fears drag pound to eight-week low

The pound tumbled to an eight-week low against the dollar on Tuesday (14 March), amid growing concerns over the negotiating process that will lead Britain out of the European Union.

Sterling had snapped an 11-day losing streak in the first session of the week, but the feel-good factor quickly evaporated as the UK currency tumbled sharply against its main rivals. By early afternoon, the pound was 0.64% and 0.41% lower against the dollar and the euro respectively, trading at $1.2140 and €1.1421.

On Monday evening, the House of Lords passed a bill authorising the start of Brexit, paving the way for Article 50 to be triggered and the start of negotiations to leave the EU.

The upper house did not reinstate the amendments it had sent back to the Commons after peers had demanded Parliament get a "meaningful" vote on the final Brexit deal, as well as a guarantee that the rights of EU citizens' living in the UK would be protected.

"Delays to the process have been viewed as a negative for sterling, and passing the bill clears the way for the government to trigger Article 50 by its month-end deadline," said Alexandra Russell-Oliver, currency markets analyst at Caxton FX.

"However, there are still significant questions about what Brexit will look like and what the implications will be, and the pound will stay vulnerable until we get greater clarity."

FXTM research analyst Lukman Otunuga added: "Although Parliament has passed the Brexit bill ultimately paving the way for the government to trigger Article 50, this does not change the bearish bias towards sterling.

"The great unknowns over the impact Brexit may have on the UK economy could ensure that the pound remains depressed for prolonged periods."

Elsewhere, the dollar was on the front foot ahead of the upcoming Federal Reserve meeting later this week.

The greenback was 0.17% and 0.28% higher against the Swiss Franc and the Canadian dollar respectively, trading at CHF1.0089 and CAD$1.3484. Broadly flat against the yen, the dollar was also higher against its Australian counterpart and the euro, gaining 0.22% and 0.21% respectively, to AUD$1.3200 and €0.9408.

On Wednesday (15 March), the US central bank is widely expected to announce a second rate hike this year, after a series of economic data confirmed the world's largest economy remains in rude health.

"It's almost certain we will see an increase in interest rates from the Fed," said Jordan Hiscott, chief trader at Ayondo Markets.

"The question now is not if they will increase, but by how much. Going forward, with possible three rate increases for 2017 alone, I predict we will see trepidation for the equity markets in general."