The pound edged up against the dollar and euro in early London trading on Wednesday, shrugging off post-Brexit trade issues over Northern Ireland, while market participants looked ahead to the European Central Bank meeting and U.S. CPI data on Thursday.
Currency markets have been generally sluggish so far this week ahead of the two events on Thursday which are expected to be market-moving.
At 0757 GMT, sterling was up 0.1% versus the dollar, at $1.4169, having traded in a tight range since mid-May.
Versus the euro, it was up 0.1% at 85.97 pence per euro .
Sterling-dollar implied volatility gauges with one-month maturities were at their lowest since February 2020, suggesting that market participants are not bracing for significant price-action.
“Limited data points today and the market being fully focused on the ECB and US May CPI tomorrow suggest subdued price action in both EUR/GBP and GBP/USD today,” wrote ING strategists in a note to clients.
Britain’s Brexit minister, David Frost, is meeting European Commission Vice President Maros Sefcovic in London on Wednesday to try to resolve the differences over trading arrangements in Northern Ireland.
Brussels accuses London of breaking the agreement by failing to implement checks on some goods moving from Britain to its province of Northern Ireland, and has started legal action over the British government’s unilateral extension of a grace period.
So far, months of talks have done little to break the deadlock, and Britain said on Tuesday that it would tell the European Union that time is running out to find solutions.
U.S. President Joe Biden will depart on Wednesday for Britain, where he will participate in the G7 summit.
He will have a meeting with British Prime Minister Boris Johnson on Thursday.
Rabobank senior FX strategist Jane Foley wrote in a note to clients that, although currency markets have largely ignored the post-Brexit trade tensions between Britain and the EU so far, it is possible that “any involvement from Biden this week will raise awareness of the difficulties that the UK is having not just with the protocol but also with other trade negotiations post Brexit.”
Given the optimism about the euro zone’s economic outlook and the possible headwinds faced by Britain, the pound may struggle to break higher versus the euro in the coming weeks, Foley said.
(Reporting by Elizabeth Howcroft; Editing by Angus MacSwan)