Sterling was undermined by confusion over UK and EU demands related to a Brexit extension.

Narrow ranges generally prevailed across asset classes with caution ahead of Wednesday’s Fed policy statement.

The dollar initially retreated before regaining some ground with a more cautious tone on the US-China trade outlook providing some support as selling pressure eased.

Global equity markets also drifted lower on Wednesday given uncertainty over trade developments but held close to 4-month highs.

Oil prices maintained a firm tone on supply concerns with global benchmarks at fresh 4-month highs.
Commodity currencies failed to sustain gains despite gains in oil prices.

Sterling was undermined by confusion over UK and EU demands related to a Brexit extension.

UK labour-market data recorded a decline in unemployment to a 44-year low of 3.9% compared with consensus forecasts of an unchanged 4.0% rate while the employment increases were also above expectations. Annual average earnings growth held at 3.4%, above forecasts of 3.2% and at 9-year highs, but the jobless claimant count increased.

Sterling responded only briefly following the data as politics dominated, although there was buying support on expectations that there could be a long Brexit extension while higher oil prices also offered some net support.

The advance reversed early in the New York session with evidence of divisions over the Brexit extension within the Cabinet and uncertainty whether the EU would respond favourably, and uncertainty was the dominant market influence.

Prime Minister May is likely to ask for a short extension to June 30th to give parliament time to back the withdrawal Agreement while the EU may attach conditions and not make a final decision until next week. Sterling was slightly lower on Wednesday as confusion and uncertainty dominated. GBP/USD was held close to 1.3250 with GBP/EUR settling below 1.1700.

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