Sterling fell on Tuesday as British lawmakers rejected most amendments seeking for Britain to avoid leaving the European Union without a deal, reviving worries of a chaotic withdrawal from the trading bloc that would damage the UK economy. British lawmakers failed to pass several proposals that take a "no-deal" Brexit off the table. Instead they voted to instruct Prime Minister Theresa May to demand from the EU to replace the Irish border arrangement as a part of Brexit, but Brussels said it will not change.
"We just don't have a resolution yet," said Ben Randol, senior FX strategist at Bank of America Merrill Lynch in New York. "It just sets up more conflicts going forward." In late trading on Tuesday, the pound fell 0.71 percent to $1.3062, retreating further after hitting its highest since mid-October last week. The euro jumped 0.80 percent at 87.53 pence, reversing its earlier fall prior to the amendment votes.
The euro zone single currency was little changed at $1.1433 and marginally higher at 125.09 yen. The dollar, euro, yen and other major currencies were locked in narrow trading ranges, with traders reluctant to take big positions due to uncertainty over the U.K. parliamentary vote.
Traders also await possible clues from the Federal Reserve on whether it might pause from its current rate-hike campaign. Fed policy-makers began a two-day policy meeting on Tuesday. Investors expect the Fed, the US central bank, to adopt a more cautious stance, pressured by signs of a peak in corporate earnings and the threat of an economic slowdown at home and globally.
Fed policy-makers are expected to release a policy statement on Wednesday at 2 p.m. (1900 GMT), followed by a press conference with Fed Chairman Jerome Powell. Adding to investors' jitters were criminal charges against China's Huawei Technologies Co. Ltd. for violating US sanctions against Iran. This ratcheted up tensions between Washington and Beijing before trade talks this week. "We don't have a lot of clarity of these global risk events," Randol said.
An index that tracks the dollar against a basket of currencies was little changed at 95.815. It touched a two-week low during the session. The Chinese yuan was firm at 6.748 per dollar in offshore markets, scaling back from Monday when it reached its strongest since July.