If trade discussions end the week on a positive note, the dollar could slip as a result of increased risk appetite.
However, the pound might fail to capitalise on any US dollar weakness as Prime Minister Theresa May is facing the threat of a new rebellion by Tory MPs who have said they may support an extension to the UK’s EU membership if Mrs May cannot secure a deal in time.
Sterling was further dampened by European Commission President Jean-Claude Juncker’s comment that he is “not very optimistic” that a no-deal scenario can be avoided.
The GBP/USD pairing fluctuated yesterday afternoon following the release of mixed data for the US.
Durable goods orders failed to pick up by as much as expected, but the US flash Markit composite PMI struck an eight-month high, rising to 55.8 in February.
However, the manufacturing gauge showed that output had fallen to a 17-month low, with the index falling to 53.7.
Commenting on the data, Tim Moore, Associate Director at IHS Markit said: “The main worrying development was the loss of momentum reported by manufacturing companies in February.
“Businesses that experienced a soft patch for production cited a range of factors holding back growth, including adverse weather, worries about the global economic outlook and ongoing international supply chain uncertainty.
“Nonetheless, relatively strong domestic business conditions mean that US manufacturers remain on a much more positive trajectory than the recent downbeat production trends signalled by IHS Markit’s Manufacturing PMI surveys across Europe and Asia.”
Looking ahead to this afternoon, the US dollar could see an upswing of support following several speeches from members of the Federal Reserve.
If their tone is hawkish and policymakers hint about future rate hikes, the dollar could rise against Sterling.
Additionally, if there are further signs that little progress is being made in Brussels, demand for the pound will be limited.
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