Sterling erased its earlier gains and edged lower on Tuesday as a rise in optimism over prospects for a Brexit trade deal with the European Union faded.
Still, the pound remained close to five-week highs after EU chief negotiator Michel Barnier’s comments on Monday that a Brexit deal was possible within weeks and British economic data has been supportive of the currency. Latest economic figures on Tuesday showed British workers’ underlying pay growth picking up faster than expected, although market attention is squarely focussed on Brexit headlines.
With less than seven months to go before Britain is due to leave the European Union, derivative traders at large banks report an increase in volatility trades on the British currency rather than taking directional calls.
News that Bank of England Governor Mark Carney would extend his term until the end of January 2020 did little to boost the pound before a policy meeting this week. Though comments from policymakers have been perceived by markets as conciliatory, sterling remains the most volatile currencies among the majors with expected swings in currency fluctuations doubling over the past month to the highest in six months.
The U.S. dollar edged up against a basket of major currencies on Tuesday as concerns about trade friction between China and the United States prompted some safe-haven buying of the currency.
China will ask the World Trade Organization (WTO) next week for permission to impose sanctions on the United States, for Washington’s non-compliance with a ruling in a dispute over U.S. dumping duties.
Anxiety over the trade dispute between the world’s two biggest economies outweighed traders’ optimism about a possible agreement on the terms of Britain’s exit from the European Union and reversed some of euro and sterling’s gains on Monday.
13.30 – USD: PPI MoM; Forecast at 86.9% against previous of 86.1%
13.30 – USD: Crude Oil Inventories; Forecast at -1.3M against a previous of -4.3M