FX Focus: Pound holds steady as Article 50 trigger looms

The pound was broadly flat against its main rivals on Tuesday (28 March), with investors reluctant to make any major moves ahead of the formal beginning of Britain's exit from the European Union tomorrow.

Having climbed above $1.26 for the first time since 2 February in the first session of the week, sterling unchanged against the dollar and the euro respectively, trading at $1.2552 and €1.1560.

"So far the currency has not displayed any pre-Article 50 jitters, the Trump healthcare hubbub helping distract investors from Theresa May's itchy trigger finger," said Spreadex financial analyst Connor Campbell.

On Wednesday, Theresa May will trigger Article 50, thereby sanctioning the start of the process that will take Britain out of the European Union, but some analysts suggested that might not have as drastic an impact on the pound as feared.

Michael Hewson, chief market analyst at CMC Markets, said: "Most of the UK economic downside is largely already priced in, which would suggest that as long as we stay above the recent lows then the risk remains more to the upside than the downside."

Across the Atlantic, meanwhile, the dollar struggled for direction as it sought to rebound from the major losses it recorded in the previous session. The greenback plunged on Monday, after Donald Trump failed to get his amendments to Obamacare passed by Congress last week, leading to investors growing doubtful over his ability to push through his other policy initiatives such as tax reforms and infrastructure spending.

The greenback fell 0.33% and 0.10% against the yen and the Swiss franc respectively, trading at ¥110.30 and CHF0.9846. The US currency was flat against the euro, but gained 0.13% and 0.20% against its Canadian and Australian counterparts, trading at CAD$1.3393 and AUD$1.3148.

"The more than 15% rally in equity markets, along with the rise in the US dollar and Treasury yields, since Trump's victory has been built on the belief that he will deliver and if doubts are in fact creeping in, those gains will start to disappear," said Oanda senior market analyst Craig Erlam.

Elsewhere, the South African Rand tumbled over 5% against the US dollar amid mounting speculations President Jacob Zuma coule be about to sack finance minister Pravin Gordhan.

"Removing Gordhan – who is widely respected by the business community – would have an immediate and significant negative effect on South African equities and on the rand," said John Ashbourne, Africa economist at Capital Economics.

"[This] underlines the importance of Gordhan to investor confidence in South Africa. And even if the minister is not removed, today's events show that President Zuma is totally unconcerned with the effect that his often erratic policymaking style has on markets."