Currencies: Dollar bounces higher versus the pound as Brexit woes hit sterling

The British pound declined against the U.S. dollar on Wednesday as U.K. officials continued to race against the clock in Brexit negotiations with the European Union, but the greenback was largely steady against other rivals.

What are currencies doing?

The ICE Dollar Index DXY, +0.07%  was fractionally higher at 93.403, and the broader WSJ U.S. Dollar Index BUXX, -0.02%  edged up 0.1% to 86.83. The closely watched ICE Dollar Index has risen roughly 0.6% so far this week.

The pound GBPUSD, -0.4240%  fell to $1.3368 from $1.3443 late Tuesday, and the euro EURUSD, -0.0254%  bought $1.1809, down from $1.1826 in the previous session.

The Japanese yen USDJPY, -0.47%  changed hands at ¥112.60, up from ¥112.23.

Meanwhile, the buck against the Canadian dollar USDCAD, -0.1971%  bought C$1.2664, slipping from C$1.2687.

Read: Canadian-dollar bulls look for hawkish central bank and a rate hike by March

What’s driving the markets? The pound had traded above $1.34 against the dollar before it fell to an intraday low of $1.3358. That drop came after U.K. Brexit Secretary David Davis reportedly said the government hasn’t carried out any economic assessment on how Britain’s exit from the European Union will impact different parts of the British economy as it’s too early in the Brexit process.

U.K. Prime Minister Theresa May was in the U.K. parliament Wednesday fending off criticism over her government’s handling of Brexit talks. Sterling has struggled after what appeared to be an agreement over some issues surrounding Brexit fell apart on Monday, ahead of next week’s summit of EU leaders. Arlene Foster, leader of the right-wing Northern Irish Democratic Unionist Party, which is May’s coalition partner, reportedly turned down a proposal to create a special arrangement for Northern Ireland’s border with the Republic of Ireland.

Meanwhile, investors remained focused on negotiations over U.S. tax reform after the Senate passed its version of the bill over the weekend. Traders are watching for lawmakers in the Senate and the House to reconcile version of their tax bills. That needs to be done before a final bill is sent to President Donald Trump to sign into law.

But a sticking point has emerged over the corporate alternative minimum tax, a provision that companies and top House Republicans want to come to an end. The Senate’s tax bill still has the provision. The corporate AMT is meant to make corporations pay a minimum tax of 20% if breaks make their tax bill too low.

Read: Here’s why the corporate AMT is a hurdle to a final tax bill

What are strategists saying?: “The pound has edged lower today as divides at Westminster over Brexit unsettle investors. The rumors of a fresh split within the cabinet between the Prime Minister and those who fear she is aiming for a soft Brexit have weighed on sterling,” said William Anderson Jones, head of UK corporate dealing at RationalFX, in an note.

“A group of German firms have signaled their unease and intention to reconsider their trade links [with the U.K.] if progress does not become clear. With the December EU summit approaching next week, investors will be bracing themselves for further movement and volatility,” in the pound, he said.

“From the U.S., we get the ADP National Employment Report for November and the figure is expected to come in at 185,000. Should the forecast be met, it could heighten expectations for nonfarm payrolls to meet their forecast of 200,000 as well. Something like that could bring the dollar under renewed buying interest,” wrote Peter Iosif, research analyst at IronFX.

What are the data? ADP’s November report on private-sector jobs is slated for release at 8:15 a.m. Eastern Time, helping to whet investor appetite for the government’s nonfarm-payrolls release due Friday.

At 8:30 a.m. Eastern, figures on productivity and labor costs is scheduled to arrive, with forecasts from economists polled by MarketWatch coming in at 3.3% and 0.2%, respectively.

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