Forex markets were relatively quiet on Monday as economic releases were limited. However, political challenges in the UK during the weekend, pressured the pound, while the dollar managed to gain ground as investors were widely expecting a third Fed rate hike despite continuing uncertainties around the US tax overhaul lingering in the background.

An article published in the Sunday Times over the weekend reported that forty parliament members from the Conservative Party agreed to sign a letter expressing their reluctance on Prime Minister Theresa May’s leadership -eight more members would be needed for her position to be threatened by a leadership contest. May has been struggling to regain support from her Conservative counterparts since she lost her majority in a snap election in June, while her stance in Brexit negotiations was also criticized.

In other news, the Brexit minister David Davis dismissed the two-week deadline on settling the divorce bill issue set by the EU Brexit negotiator, arguing on Sunday that Britain will not put on the table any amount or formula on how much the country owns to the EU upon leaving the bloc.

The pound retreated by 0.70% to $1.3096 after rising for two consecutive days. Euro/pound jumped by 0.50% to a ten-day high of 0.8891 and pound/yen tumbled by 0.85% to 148.54.

The dollar index, which measures the dollar’s strength against six major currencies, opened higher in Asia, trading around 94.54, 0.17% higher on the day, as investors continued pricing a third-rate hike in December. In addition, the Philadelphia Fed President, Patrick Harker, said on early Monday that he would back a rise in interest rates in December although inflation remains subdued. However, weaker inflation figures due out of the US on Wednesday could hamper monetary policy tightening and therefore pressure the dollar. Besides, that, further disappointments on the promised US tax reforms could also harm the dollar’s outlook.

Meanwhile, the US President, who continues his 12-day trip across Asia, expressed his satisfaction on the progress of trade arrangements during his visit, notifying that the White House will release a statement on North Korea and trade issues on Wednesday.

Dollar/yen was mainly flat around 113.49. The dollar-denominated gold edged up to $1,276.28 per ounce after a deep fall on Friday towards $1,273.25.

Euro/dollar was 0.21% down amid political turmoil in the Eurozone and specifically in Spain, where the Prime Minister, Mariano Rajoy urged Catalans to pull back from independence, arguing that next month’s regional elections will help Catalonia to recover from “the havoc of separatism”.

In other currencies, the aussie retreated by 0.22% to $0.7647 after another lawmaker resigned over his dual citizenship, reducing Prime Minister Malcolm Turnbull’s majority even further, while the RBA Governor admitted that rates would rise only if wage growth and inflation will pick up.

The kiwi fell by 0.17% to $0.6917.

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