Pound Falls as Economic Data, Lords Add to Brexit Uncertainty

(Bloomberg) -- Sterling slipped to a seven-week low versus the dollar on Tuesday, driven by weaker economic data and growing uncertainty over the course that Brexit negotiations will take, with lawmakers demanding more say in the deal the U.K. forges with the European Union.

The pound fell against all Group-of-10 currencies. The House of Lords' final debate Tuesday on a Brexit bill threatens to disrupt the government's plan for exiting the EU. Sterling was also pressured by data showing declining retail sales and slowing house-price increases in the U.K., adding weight to predictions for waning economic momentum this year.

“There's a combination of near-term pound headwinds, a perfect storm one may say, that is weighing on the currency,” said Viraj Patel, a currency strategist at ING Groep NV in London. “The Lords' Brexit bill is one element adding to the uncertainty. But we also had weak U.K. data, which gave a bit of a reality check on expectations of a resilient U.K. consumer in 2017.”

• The focus is also on tomorrow's U.K. budget, where expectations are for a more conservative fiscal stance, Patel says
  • The near-term outlook doesn't seem “particularly constructive and we suspect markets don't want to be caught holding GBP ahead of these headwinds plus potential Article 50 noise in the next few weeks,” he says
• With the Brexit bill draft now being sent back to the House of Commons where the Lords' proposed amendments will be looked into, analysts at Credit Agricole CIB said they “keep a cautious stance with respect to GBP and believe rallies should still be sold”
  • This is due to “both intact uncertainty as related to Brexit and strongly capped BOE monetary policy expectations”
  • Credit Agricole's positioning update shows “speculative positioning remains broadly balanced”
  • The annual rate of growth in U.K. house prices slowed to 5.1% in the three months to February from January's 5.7%, the lowest since July 2013, according to data released by Halifax
  • U.K. retailers say consumers are ‘cautious' as sales weaken. The British Retail Consortium said the last three months saw the first annual drop in non-food sales since 2011
  • GBP/USD falls 0.3% to 1.2199, after a low of 1.2183, the weakest since Jan. 17; is now trading below Fibonacci support at 1.2261 
    • Resistance at 1.2254, daily pivot and 1.2301-07, March 6, 2 high
    • Support at 1.2156, the 76.4% Fibonacci retracement of its advance from Jan. 16-Feb. 2
    • EUR/GBP rises 0.3% to 0.8671, having earlier reached 0.8680, its highest since Jan. 18
      • Resistance at 0.8682, 61.8% Fibonacci retracement of Jan. 16- Feb. 22 drop and then 0.8708, the Jan. 18 high
      • Support at 0.8625, the low on March 6 and then 0.8599-91, the 100-DMA, March 2 high

      To contact the reporter on this story: Anooja Debnath in London at adebnath@bloomberg.net.

      To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Neil Chatterjee, David Goodman

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