Equity markets were the main focus on Thursday with significant losses, although there was some impact on currency markets as volatilities increased despite a lack of major economic data.
Sterling sentiment was again undermined by political considerations. There were expectations that weakness in the UK government would continue to undermine progress in Brexit negotiations. EU Chief Negotiator Barnier reiterated that a withdrawal agreement was necessary before trade talks could begin.
The EU Commission lowered its UK GDP forecasts with growth of 1.1% for 2019 after 1.3% for 2018 which undermined confidence, although there was a suspicion that the forecasts were politically motivated.
Reports that Prime Minister May was willing to increase the financial settlement underpinned Sterling after the European close, although there were reports of fresh difficulties surrounding Northern Ireland and persistent selling on rallies.
The main dollar focus was on tax reform as the Senate announced its proposals. A planned delay in corporate tax cuts for 12 months until 2019 was the principal talking point. The US currency came under pressure with the trade-weighted index declining close to 0.4% on growth and monetary tightening doubts.
The latest UK industrial production and trade data are due for release on Friday with markets also continuing to monitor US tax proposals closely. Given the impact of position adjustment, volatility in equity and bond markets is likely to lead to choppy currency trading during the day.