FX round-up: Sterling falls on renewed Brexit jitters as Trump helps dollar higher

Sterling had a torrid time on most key crosses Wednesday as rejuvenated Brexit jitters, weaker than expected manufacturing data and a US President Donald Trump-inspired rise in the dollar told against it.

At about 17:07 GMT, sterling was down 0.47% to $1.2322, and it was down 0.36% to €1.1663. The dollar-spot index was up 0.45% to $101.570.

Spreadex financial analyst Connor Campbell said sterling has spent the last few sessions suffering in comparison to the Trump-swelled, rate hike-eyeing dollar.

"Today was no different, the (GBP) currency shedding another 0.3% (or more) against the greenback to leave it firmly under $1.24," he said, noting this had the knock-on effect of helping the FTSE 100 and FTSE 250 up to record closing levels.

Sterling's weakness was also courtesy of revitalised Brexit nerves, with polarising UK Prime Minister Theresa May's Brexit Bill facing defeat in the House of Lords. Peers are debating calls for the protection of EU citizens' rights in the UK after Brexit.

Worse-than-expected UK manufacturing growth also undermined sterling. Markit/CIPS' final manufacturing PMI fell to 54.6 from 55.7 in January. A reading of 55.6 was expected.

The British currency also fell against the aussie, loonie and rand, but achieved minor gains on the kiwi and yen. Overall and in contrast, the US dollar performed relatively well, rising on the euro, loonie, kiwi and yen, but falling against the aussie and rand.

The greenback's rise came after Trump fronted Congress last night with a policy-light speech, but pledging $1trn to rebuild the US' infrastructure. Various US data -- personal spending/income, manufacturing PMI and construction spending -- did not send shock waves rippling through the otherwise buoyant mood of traders.

This was as successive US Federal Reserve officials took hawkish views on lifting US rates served to revitalise transatlantic market optimism.

Michael Hewson, chief market analyst for CMC Markets UK, said the sharp increase in the prospect of a US rate hike in two weeks' time had seen the dollar continue its upward bent.

"Two-year yields hit their highest levels since August 2009 today at 1.3%, as expectations of a move this month have jumped sharply in the past week, from 36% to 82%," Hewson said.

This was on the basis of recent comments by senior Fed officials about the prospects for higher rates, with the normally dovish New York Fed President Bill Dudley the major driver of this recent change in expectations.

"If the Fed now doesn't move (on rates) in March it would be sensible to ask why Fed officials felt the need to raise expectations in such a manner in the first place," pondered Hewson.

"In a sense they’ve now boxed themselves into a corner, and run the risk of losing credibility if they fail to act in two weeks' time."

FXTM vice president of market research Jameel Ahmad said he believed the dollar should now strengthen over the near-term on the potential for a March rate hike.

While the markets might not have been pricing in a US interest rate rise this month, US economic data is maintaining its consistent strength and the Federal Reserve is maintaining its public intention towards raising US interest rates around three times in 2017.

"Basically my opinion is that the markets will ... begin to price in the possibility that the Federal Reserve could pull the trigger in March," said Ahmad.