Sterling reversed losses to trade higher after Prime Minister May announced she would look for a Brexit compromise with the opposition Labour Party.

The dollar gained support during Tuesday from expectations of dovish central bank policies outside the US, but EUR/USD recovered from 21-month lows below 1.1200.

Risk appetite strengthened on Wednesday following firm Chinese data and hopes for a US-China deal with global equity markets securing net gains.

Demand for defensive assets faded, although yen and Swiss franc losses were limited.

Oil prices continued to advance and posted 5-month highs on supply concerns and firmer risk conditions despite an API inventory build.

The Australian dollar was boosted by strong domestic data and firmer risk conditions.

Sterling reversed losses to trade higher after Prime Minister May announced she would look for a Brexit compromise with the opposition Labour Party.

The UK PMI construction recorded a second successive month in contraction territory despite a slight increase to 49.7 from 39.5 previously. Commercial activity was again undermined by Brexit uncertainty, although business optimism strengthened slightly. Sterling failed to derive any support from the data and drifted lower amid on-going fears over political deadlock with GBP/USD lows near 1.3000 as GBP/EUR settled above 1.1700.

Ahead of the New York open there were reports that lawmakers led by Letwin and Cooper were introducing a Bill to prevent a ‘no-deal’ Brexit on April 12th which stemmed selling.

After the European close and a marathon Cabinet session, Prime Minister May stepped-up her opposition to a ‘no-deal’ outcome and requested a further short extension to Article 50. She also stated she would attempt to break the deadlock and hold further talks with the Labour Party.

Sterling moved sharply higher on hopes that a compromise could be reached with a potentially ‘softer’ Brexit. There was a GBP/USD move back above 1.3100 with GBP/EUR above 1.1700. Although markets were extremely wary given severe Conservative Party tensions, divisions within parliament and uncertainty over the EU, firmer global risk conditions helped underpin Sterling on Wednesday with GBP/USD around 1.3150.

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