Sterling recouped some losses on Monday after slipping against for three consecutive weeks, but any strong gains were checked by continued uncertainty around Brexit talks and instability in the governing Conservative party.
Investors are monitoring the negotiations around Britain’s future relationship with the European Union for the impact not only on business confidence and economic growth, but also on the likelihood of further interest rate increases, after the Bank of England’s decision to raise rates last week.
The dollar pushed higher against a basket of the other major currencies today as investors continued to monitor the progress of the U.S. tax bill, while the euro fell to the lowest level in three months.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.37% at 94.97 by 08:57 AM GMT.
Demand for the dollar continued to be underpinned by expectations that the Federal Reserve is on track to raise interest rates in December for a third time this year after strong U.S. factory and service sector data last week backed the case for continued policy tightening.
The euro has remained on the back foot since the European Central Bank said late last month that it is extending its bond purchases into September 2018.
The euro slipped on Tuesday but stayed within recent trading ranges, as recent economic data surpassed market expectations, making investors wary of pushing the single currency lower.