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British Pound Slips as Brexit Volatility Continues

After huge gains last week, GBP/USD has started the week with sharp losses. In Monday’s North American session, the pair is trading at 1.3194, down 0.74% on the day. It’s a light data calendar, with no British events on the schedule. In the U.S., the NAHB House Market Index. On Tuesday, the U.K. releases wage growth and claimant count change.

Brexit has reached a fever pitch, as parliament voted three times last week on Brexit. On Thursday, lawmakers voted to delay Britain’s exit from the European Union. Brexit is scheduled to take place on March 29, so an extension of Article 50 would give the May government some breathing room. However, the uncertainty surrounding Brexit is far from over. It’s unclear how long an extension the E.U. would be willing to grant, although senior E.U officials have said that a year or more would be acceptable. The E.U. will have to reach a consensus from all 27 members, each of whom must vote in favor of an extension to Article 50. Parliament remains deeply divided over Brexit, and Prime Minister May, though badly shaken, hasn’t given up on her withdrawal deal. Parliament is scheduled to vote again on May’s withdrawal agreement, but the government could pull the vote if the numbers are not there to pass the proposal. Traders should be prepared for further volatility from the pound.

In the U.S., consumer inflation remains soft, which means there is little pressure on policymakers to raise rates in the near future. In February, Core CPI edged down to 0.1%, while CPI remained steady at 0.2%. Consumer inflation remains well below the Federal Reserve’s target of 2.0 percent, so there is little pressure on the Fed to raise rates anytime soon. Policymakers have been signaling that the Fed could stay on the sidelines until the second half of 2019, and this stance was underscored by Fed Chair Powell has said that the Fed would remain patient and was in no hurry to change interest rate policy. The dovish stance of the Fed could weigh on the dollar, as a lack of rate hikes makes the greenback less attractive to investors.

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