FX round-up: Sterling gains on dollar and euro as all eyes turn to Yellen speech
Sterling strengthened against the US dollar and euro on Monday but remains potentially very sensitive to UK inflation and jobs data out this week, and more immediately to a speech by US Federal Reserve chair Janet Yellen tonight.
"The first day of the shortened (Easter) week has passed without incident, although a degree of hesitation prevails before a speech by Janet Yellen this evening," said Chris Beauchamp, chief market analyst at IG.
"Investors are undoubtedly hoping that Ms Yellen's speech tonight (at 21:00 GMT) will throw some more light on the mention of balance sheet changes in last week's Fed (Open Market Committee) minutes."
At 17:03 GMT, sterling was up 0.36% to $1.2415 and up 0.21% to €1.1706. The dollar-spot index was down 0.2% to $100.980. It was flat on the loonie, down on the kiwi and up on the yen and rand, with the US dollar also doing well against the South African currency.
The rand was responding to a Fitch 'junk' rating on the country's credit status on Friday. This followed an earlier S&P Global Ratings downgrade to 'junk', and both came after President Jacob Zuma reshuffled his cabinet last week and replaced the country's finance minister.
Sterling has had a torrid time since June last year when the country voted for Brexit, and it has been sensitive to headlines relating to that proposed divorce and also to economic data, relating to inflation, interest rates, manufacturing, industry and construction.
Looking to Tuesday and Wednesday, Ranko Berich, head of market analysis at Monex Europe, said UK inflation and wage growth data were the most important factors in the immediate future.
"Sterling is therefore likely to respond particularly sharply to a larger than expected increase in either inflation or wage growth in this week's data," said Berich.
On the plus side, Berich also noted that sterling was "increasingly shrugging off political headlines and survey data suggesting growth is holding up for now".
Chris Saint, senior analyst at HL Currency Service, added that UK's labour market report on Wednesday would give an insight into whether average earnings were managing to keep pace with inflation.
This was "amid persisting concerns that a squeeze on real incomes could prompt consumers to rein back their spending," he said.
Turning to the US dollar, it was down on the euro, loonie, kiwi and yen, but advanced on the aussie and markedly against the rand.
"Now that the US non-farm payroll (NFP) is over, traders are going to put their focus back on the Fed, who have been talking about winding down their balance sheet," said Naeem Aslam, chief market analyst at Think Markets UK.
"The Fed need to be very careful in their approach of conveying their message while they release their purchased bonds back on the market." Aslam also said that the focus on Yellen's speech would be towards her comments after the US NFP data.
"How hawkish or dovish Miss Yellen will be on the back of this, will matter for the dollar. The headline inflation number is going to keep Yellen up at night."