The British pound moved higher on Wednesday, boosted by hopes for a Brexit delay, while the U.S. dollar eased as weak U.S. manufacturing data bolstered bets on more aggressive policy easing by the Federal Reserve.
Sterling was up 0.3% at 1.2116 by 02:23 AM ET (06:24 GMT), amid optimism that a no-deal Brexit could be averted.
The gains came after British lawmakers voted to take control of Wednesday’s parliamentary agenda in a bid to pass legislation to prevent a no-deal Brexit. If the attempt is successful, it would force Prime Minister Boris Johnson to seek more time from the European Union and prevent crashing out of the bloc with no deal.
The pound had dropped below 1.20 and hit its lowest since a flash crash in October 2016 on Tuesday.
Johnson has said he will now push for a snap election, adding another major source of political uncertainty for sterling.
“We still just can’t say what the end game will be,” said Yukio Ishizuki, senior strategist at Daiwa Securities.
“Die-hard Brexiteers want a Brexit no matter what while the Remainers are deadly opposed. This is not an issue in which both sides can come halfway for a compromise.”
Against a basket of currencies the U.S. dollar index traded slightly lower at 98.84, having pulled back from the two-year peak it touched on Tuesday.
A closely watched report from the Institute for Supply Management on Tuesday showed that manufacturing activity in the world’s biggest economy contracted for the first time in three years last month.
“The expectation that the Fed will come to the rescue has increased,” said Rodrigo Catril, senior FX strategist at National Australia Bank in Sydney.
“But it’s not a capitulation on the dollar. It’s just merely stopped the recent rise of the dollar.”
The dollar was higher against the yen, climbing 0.27% to 106.20.
There were few signs of a breakthrough in U.S. China trade negotiations after U.S. President Donald Trump took to Twitter Tuesday to warn he would be “tougher” on Beijing in a second term if trade talks dragged on.