Aussie falls, pound tanks in Europe

The Australian dollar fell to a weekly low on Tuesday after the central bank opened the door to another cut in interest rates as early as February and other currencies also weakened due to a fading in trade-related euphoria.

In Britain, the pound tanked as Prime Minister Boris Johnson, embolded by election victory, put the risk of a hard Brexit back on the table, saying he would make extending the transition period beyond 2020 illegal.

The Australian dollar lost 0.5% to $0.6844 after minutes of its December policy meeting showed the central bank's board was concerned that wage growth was too weak to revive either inflation or consumption.

Last week saw the apparent removal of the two main risks dominating global markets: a preliminary trade deal was reached between the US and China, and the UK Prime Minister won a majority in the election, promising to end uncertainty around the UK's departure from the European Union.

But by Tuesday, optimism was starting to subside, with the safe-haven Japanese yen up 0.1% and the trade-exposed New Zealand dollar down 0.3%, as investors cautiously waited for details of the agreement.

The deal, announced on Friday after more than two-and-a-half years of volatile negotiations between Washington and Beijing, will reduce US tariffs on Chinese goods in exchange for increased Chinese purchases of some US goods.

Fitch ratings agency said that the "phase one" deal eased US-China tensions but that renewed escalation remains a significant risk, with the issue of technology posing an obstacle to full resolution.

"The Aussie is weaker on the back of the back of the more dovish than expected RBA minutes," said Valentin Marinov, head of G10 FX strategy at Credit Agricole.

"That said, market expectations of a Phase 1 US-China trade deal could limit the currency's downside in the near term."

The drop in the Australian dollar and the pound boosted the greenback, with the US currency trading 0.1% stronger against a basket of its rivals.

Against the dollar, the British currency fell more than 1% to $1.3155, erasing its post-election gains, but was last above that level at $1.3198.

The trade-exposed Scandinavian currencies also took a hit, with the euro up 0.2% against the Swedish crown and up 0.3% versus the Norwegian crown.

The euro was up 1.2% against the Brexit-startled pound and up 0.2% against the US dollar at $1.1162.