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Sterling`s Pounding Seems To Be Over
Among the major currencies, Pound registered significant moves last week, approaching US$1.30 mark against the greenback, while hitting a two-week high against th Euro. The recovery was aided by hopes of a second referendum after PM May loss a vote in the Parliament On Brexit deal. We suspect that the March 29th Brexit deadline will likely be postponed so London and Brussels get more time to negotiate, while simultaneously allowing UK to make additional preparations in case of an exit without a deal. Meanwhile,we see slim prospects of a second referendum. Having said that, markets are still less inclined to take a long-term view on Sterling given lingering Brexit uncertainties. On trading outlook, we sense markets have priced in most of the worstcase situation pertinent to Brexit, hence prefer to be long on Sterling rather than short. Although there is no significant potential for upside in the currency, the sky is certainly not falling for British economy and life will simply go on.
On the greenback, we are slightly bearish gonig ahead given the possibility of a Fed policy reset. All the tea-leaf reading leads us to an inference that Fed will likely move into a prolonged pause after raising rates at most once this year. One needs to understand that the four rate hikes in 2018 (and five more in prior years) is taking some time to work through the economy and so for the time being, the central bank has likely done enough.
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