Sterling also made net headway on hopes that some way would be found to avoid a ‘no-deal’ Brexit.

The dollar tended to lose ground amid on-going speculation over a more dovish Federal Reserve policy, although the currency index recovered from 2-month lows.

Further gains in US equity markets and hopes for US-China trade progress helped underpin global risk conditions.

The positive risk tone helped underpin commodity currencies with the Canadian dollar strengthening to 1-month highs.

Sterling also made net headway on hopes that some way would be found to avoid a ‘no-deal’ Brexit.

Gold retreated from 6-month highs as the US currency regained some ground while WTI crude was blocked below $50.0 p/b given higher US output.

The dollar remained under pressure ahead of the New York open with Fed Chair Powell’s comments on Friday still having an important as markets looked to price in a more dovish Fed stance for this year. In the options markets, Euro risk reversals hit a 6-month high on increased call demand despite an underlying lack of yield support and growth doubts.

The US ISM non-manufacturing index declined to 57.6 for December from 60.7 previously which was below consensus forecasts of 59.6 and the lowest reading for five months. The orders component remained strong, however, which suggested solid demand and, although most components recorded a significant monthly slowdown, there was some underlying relief surrounding the data after the notably weak manufacturing index released last week.

During Monday, Sterling continued to secure some support from the firmer tone surrounding global risk appetite, especially as a more positive global trade environment would provide important backing to the UK economy.

Political uncertainty remained a significant Sterling headwind as the government attempted to find a cohesive narrative ahead of the parliamentary Brexit debate due to start later this week. According to sources, Prime Minister May was still working on securing assurances from the EU, although there was no significant rhetoric from key officials. There were also reports that the EU withdrawal date could be extended and an element of optimism that parliament would block any ‘no-deal’ Brexit.

GBP/EUR held above 1.1120 and rose as high as 1.1170 early on Tuesday. GBP/USD advanced to near 1.2800 with some evidence of short covering and there was solid buying on dips following reports that the EU was willing to give fresh written assurances on the Irish backstop.

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