Currency traders showed little sign of heightened nerves on Tuesday ahead of Britain's formal launch of negotiations on leaving the European Union.
British Prime Minister Theresa May will trigger Article 50 of the EU's Lisbon Treaty with a formal notification of Britain's intent to leave the bloc on this afternoon, kicking off a two-year period of exit talks. Most analysts said the actual triggering of Article 50 will only have symbolic significance for investors, with the real driver for sterling being how negotiations with the EU will play out, and the health of the British economy going forward. Investors' main fear is that a "hard" Brexit -- one in which Britain would lose preferential access with its largest trading partner -- would damage the British economy, which is showing signs of faltering.
Worries are also growing that Britain's exit negotiations could be tough and protracted, as both Theresa May and European leaders take bold opening stances. Uncertainty surrounding the terms of Britain's exit from the EU continues to weigh on the currency, still down by nearly 20 percent against the dollar since last June's Brexit vote.
Adding to unknowns for investors have been rumblings of another Scottish independence referendum, which threatens a potential break up of the UK just as it departs the EU.
The dollar steadied on Tuesday after its worst week since U.S. President Donald Trump’s election in November, promises of more rises in Federal Reserve interest rates this year helping it recover from multi-month lows in still shaky global markets.
The index that measures the broader strength of their U.S. counterpart was trading almost half a percent above Monday's four-and-a-half month low but it was up just 0.1 percent on the day after a volatile Asian session.
Analysts pointed to support from appearances by Dallas Federal Reserve Bank President Robert Kaplan and Chicago Fed chief Charles Evans as putting the emphasis back on the prospect of more rises in U.S. interest rates.
The leaders of France and Germany must use the window of opportunity that opens up after elections in both countries to inject new momentum into their single currency project or risk its failure, a leading French think tank warned on Monday.
In a 77-page report entitled "The Europe We Need", the Institut Montaigne, an independent institute with links to French presidential candidates Emmanuel Macron and Francois Fillon, called for a "multi-speed" Europe in which the euro zone presses ahead with its own budget and even a prime minister.
Polls suggest Macron, a pro-European former banker, will face Marine Le Pen, the anti-EU leader of the far-right National Front, in a second round run-off on May 7th, and beat her. With the German election being held four months after the French vote; Conservative Angela Merkel is expected to face a tough challenge from Social Democrat Martin Schulz, the former president of the European Parliament.
Tentative – GBP – UK Government Triggers Article 50 for Brexit
15.30 – USD – Crude Oil Inventories