The sterling stayed close to 20-month lows against the US dollar on Tuesday, as the market absorbed the decision of British Prime Minister Theresa May to call off a crucial vote on her Brexit agreement.
The pound rose 0.5 percent to 1.2631 against the greenback after falling 1.3 percent on Monday, when it the currency hit 1.2507, its weakest level since April 2017.
May on Monday postponed Tuesday’s parliamentary vote on her Brexit deal to ask for further changes, a move that threatens UK’s orderly exit from the European Union (EU) as Britain now faces a departure from the bloc without an agreement, a last-minute deal, or another EU referendum.
As it stands the arrangement would be rejected by a significant margin if Members of the Parliament (MP) voted on it, said May, although she stated that she was confident of getting reassurance from the bloc on the Northern Ireland border plan.
However, European Council President Donald Tusk said the remaining 27 EU countries would not renegotiate the deal.
The euro, meanwhile, advanced 0.2 percent to 1.1385 against the greenback after losing 0.2 percent in the previous session, while it weakened by 0.3 percent to 0.9013 against the pound.
The common currency did strengthened against the sterling, but worries over violent protests in France against President Emmanuel Macron’s economic reform put a cap on gains.
Dollar Recovers after 2-1/2-week Low
Benefiting from the sterling’s decline was the dollar, as it rebounded from a 2-1/2-week low against a group of six major currencies mainly due to rising possibility that the Federal Reserve will put its rate hike cycle on pause at a much earlier time than previously expected.
The US dollar index, a measure of the greenback’s strength against six major peers, traded down 0.3 percent to $96.893. The currency hit 96.364 in overnight trade, marking its lowest level since November 22.
Against the yen, the dollar dropped 0.2 percent to 113.05 after adding 0.5 percent overnight.
There is not enough demand for the yen, which is less of a safe haven, and the euro, with the political concerns in Europe. There is also of the course the pound which is burdened with Brexit problems, stated senior FX strategist Junichi Ishikawa.
Ishikawa also said falling US yields will eventually nudge the dollar into a downtrend, but probably not at this moment.
Dovish remarks from Fed officials and soft US data that is further supporting outlook of an imminent pause in the tightening cycle has left the 10-year Treasury yield at three-month lows this week.
It is difficult to draw a very bearish scenario for the dollar as talks of the US economy slipping into recession and the Fed switching to monetary easing from tightening seems to farfetched at this point, according to Koji Fukaya, president at a securities dealer services provider in Tokyo.
Whenever there is a global risk-off event, the dollar will find demand – as long as the risk aversion does not originate in the US, Fukaya added.
Elsewhere, the Australian dollar climbed 0.2 percent to 0.7208 against its US counterpart, while the New Zealand dollar tumbled 0.07 percent to 0.6875.
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