The pound rose against both the dollar and the euro overnight before steadying, recovering somewhat from seven-week lows but not fully participating in a market-wide relief rally from improving risk appetite.
Positive signs from a coronavirus antibody trial saw safe-haven currencies, such as the dollar, fall as markets rallied.
However, downside risks continue to weigh on the pound. The market has started to price in the possibility of negative interest rates.
A Bank of England rate-setter, Silvana Tenreyro, said late on Monday that the central bank has not ruled out negative interest rates.
This added to speculation after the bank’s chief economist, Andy Haldane, said in a newspaper interview on Sunday that negative rates were being looked at more urgently.
Brexit also continues to deter pound investors, after the latest round of negotiations ended with scant progress on Friday.
The UK announced a new post-Brexit tariff regime on Tuesday morning to replace the European Union’s external tariff, maintaining a 10% tariff on cars but cutting levies on tens of billions of dollars of supply chain imports.