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Sterling Holds On To Gains Ahead Of Vote

The pound drifted lower this morning after posting its biggest weekly rise in more than 15 months last week as investors consolidated positions before crucial votes in the British parliament that will aim to break a Brexit deadlock.

Lawmakers earlier this month rejected Prime Minister Theresa May’s EU withdrawal agreement, which included a nearly two-year transition period to help minimize economic disruption. That defeat set up a series of votes in parliament tomorrow through which lawmakers and the government will try to find a way forward.

Analyst expect sterling to remain volatile. Britain is set to leave the European Union on March 29, but the country’s members of parliament remain far from agreeing a divorce deal.

The dollar eased versus most currencies this morning as investors turned their attention to this week’s Federal Reserve policy meeting, with traders wagering policymakers will signal a pause in their tightening cycle.

The Federal Open Market Committee meets between Jan 29-30, and Chairman Jerome Powell is widely expected to acknowledge growing risks to the U.S. economy as global momentum weakens.

 The general direction for the dollar is still down and markets will be taking clues from the FOMC this week.

The Fed will most likely keep rates steady this year given the state of economic growth outside the U.S.

Over the past two months or so, Powell and several other Fed policymakers have taken a more cautious approach on further monetary tightening, leaving the dollar underpowered after it enjoyed a boost from the Fed’s four rate increases last year.

Cable gained 2.5 percent last week after a report in the Sun newspaper that Northern Ireland’s Democratic Unionist Party had privately decided to offer conditional backing for British Prime Minister Theresa May’s Brexit deal this week.

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