Sterling Unimpressed by Brexit Extensions, Dollar Weakens

The Pound offered a fairly muted response yesterday evening despite European leaders agreeing to delay Brexit until October 31.
Lukman Otunuga
Gold and dollar bills

While this development removes some element of uncertainty and averts the chances of a no-deal Brexit in the near term, what happens next remains open to question. With this development seen as simply kicking the can further down the road, appetite towards the Pound is likely to diminish further as the new deadline looms. The fact that all options still remain open, ranging from a no-deal, a second referendum, general elections and even no Brexit at all, the coming months may be rough and rocky for the Pound.

Focusing on the technical picture, the GBPUSD continues to wobble above 1.3000 on the weekly timeframe. A decisive breakdown and weekly close below this point are likely to open the gates towards 1.2800 in the short to medium term.

The Dollar hit by Dovish Fed minutes

Buying sentiment towards the Dollar took a hit after the Fed minutes revealed officials largely approved a “patient” approach to monetary policy in 2019.

With expectations sharply deteriorating over the Fed raising rates and speculation rising of a potential cut, the Dollar is likely to weaken further against a basket of major currencies. It should also be kept in mind that the release of March cores US inflation data printed below market estimates. The latest CPI reading shows that inflationary pressures in the US are merely simmering, which allows the Fed to remain “patient” on interest rates.

Although the Greenback may draw support from the deteriorating outlook on global growth, this is likely to be overshadowed by a dovish Fed and concerns over the US economy. From a technical perspective, the Dollar Index (DXY) has scope to target 96.20 if the 96.80 level is breached.

Commodity spotlight – Gold

Gold may end up becoming the unexpected champion in the commodity space this week due to Dollar weakness and overall caution across financial markets.

The Federal Reserve’s patient stance towards interest rates will be another factor that is likely to boost attraction towards the zero-yielding metal. With prices already securing a daily close above $1300, the next key point of interest will be around $1324. A failure for prices to close above $1300 could open a path back towards $1280. As long as concerns over slowing global growth and a dovish Fed remain major market themes, Gold should receive protection from extreme downside shocks.

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