Summary:
The pound trimmed gains Tuesday after Britain and the EU agreed on a major trade and defense deal; the weak dollar eyed trade talks.
The pound digested last session's gains on Tuesday after Britain agreed a major trade and defence reset with the EU. The dollar remained broadly weak with focus shifting to ongoing trade talks.
It marks the biggest reboot since the UK officially left the EU in 2020. The Labour government said the deal would make it easier for food and drink to be imported and exported by reducing paperwork and checks.
In return, the UK will give the EU access to its fishing waters until 2038 - a 12-year extension of arrangements already in place. A security pact was also under discussion amid geopolitical tension.
It is agreed that UK will participate in the EU's proposed new £150bn defence fund which is driven by Russia's invasion into Ukraine. That opens up opportunities for arms firms in the country to bid for defence contracts.
Earlier this month the UK signed a "historic" free trade deal with India that has some of the world's highest tariffs on imports. Under the deal, India will cut levies on 90% of British products sold domestically.
Consumer prices index are expected to have increased by 3% year over year in April, a sharp increase from the 2.6% recorded for March. But trade deals will help bring inflation back to the 2% target.
Sterling is trading near the high of 1.34 hit on 6 May. Without fresh catalyst to spur a breakout, the currency could move lower towards 1.3345.
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