FX round-up: UK trade budget widens as greenback trades on the backfoot

Data out for the UK on Tuesday showed an unexpectedly wider budget deficit, while in the US, the dollar weakened 0.17% to 93.923 against a basket of currencies.

According to the Office of National Statistics (ONS), the public sector net borrowing deficit widened to £7.5 billion, increasing more than expected by analysts (£6.6 billion), underscoring finance minister Philip Hammond's challenge as he juggles calls for more spending in his budget on Wednesday amid weaker economic growth, had little perceptible impact on the currency.

Sterling was already on it's way down against the dollar before the release, and traded 0.43% lower to 1.3210, but soon recovered to move slightly higher on the day by 0.11% at 1.3249.

Front and centre for the pound has also been the latest round of Brexit rhetoric as UK Prime Minister Theressa May moved closer towards a settlement sum payable to the EU upon Britains exit.

Media reports said that ministers had agreed to make an offer which would increase May's existing commitment, though they offered a mixed picture, which investors said was keeping a lid on any gains for the British currency.

The Independent news website said May's opening offer could double to around 40 billion euros but it gave no details, while the BBC reported that no specific amounts had been discussed during the meeting.

"It's not a done deal yet by any means. I remain pessimistic and think there could be significant disappointment that would lead to a lower pound," ACLS Global chief strategist Marshall Gittler said.

Against the euro, sterling managed to gain marginal ground on the day, trading 0.08% firmer at 1.1288, while German politics drove the single currency movements on the day.

Germany's Chancellor Angela Merkel raised the prospect on Monday of a new election after talks on forming a three-way coalition collapsed.

But two of her veteran allies urged parties on Tuesday to make compromises and form a stable government.

"The worst case scenario is that the German political process will take a little more time to resolve but markets are not expecting anything extraordinary to come out of this and the bigger picture is that the economy is performing well," said Commerzbank currency strategist Esther Reichelt in Frankfurt.

Despite the German political situation, the Eurozone is exceeding the US in growth, led by Germany, the single currency has recovered from earlier lows and investors were becoming more comfortable in holding European assets.

Against the US dollar, the euro was relatively flat on the day, down 0.04% to 1.1729.

Over in the US, existing homes sales came in at 5.48 million, beating expectations of 5.42 million.

Trading is expected to be relatively thin this week, ahead of the Thanksgiving holiday in the US on Thursday.

Attention will therefore be focused on Wednesday data releases including core durable goods orders, unemployment claims and also the release of the latest FOMC meeting minutes.

"Stepping back from the daily activities, the big mountain that we're still looking to traverse is still tax reform – what form, and on what timeline," said Bill Northey, chief investment officer at the private client group of US Bank in Helena, Montana

According to a Reuters poll, US Republicans are unlikely to push major tax cuts through Congress this year and were also skeptical that tax reform would provide a significant boost to the economy.

Over in Asia, USD/JPY traded 0.18% lower to 112.41, holding on to overnight lows with support in the 112.42 area.

"Ahead of this week's holidays, it would not have been unusual for the dollar to have fallen on position adjustments as investors pared their dollar-long positions, in case there was some dollar-negative news while they were away," said Kumiko Ishikawa, FX analyst at Sony Financial Holdings in Tokyo.

The Austarlian dollar was 0.46% firmer against it's US counterpart to 0.7585 after finding support at 0.7532 and pushing through resistance at 0.7574.

Minutes of the Reserve Bank of Australia's (RBA) 7 November policy meeting showed it harboured "considerable uncertainty" about how quickly wages growth and inflation might pick up.

After that meeting, the RBA trimmed its forecasts for core inflation to below its long-term 2-3 percent target band for another two years.