- "Broad positioning is short sterling, but not at extremes by any means. This limits the prospect we get an exaggerated short-covering rally to say $1.3800 or $1.4000."
SINGAPORE: The dollar earned a reprieve from selling pressure on Wednesday as traders paused to weigh risks ahead, ranging from Brexit trade talks in Brussels to Congress' wrangling over a pandemic relief package and a looming European Central Bank meeting.
Sterling, which has whipsawed while trade negotiations are deadlocked, steadied above recent lows at $1.3365 early in the Asia session.
Its fate now rests on whether a dinner between British Prime Minister Boris Johnson and European Commission president Ursula von der Leyen in Brussels can deliver a breakthrough.
Other majors mostly held their ground, and the euro and the Antipodean currencies took a breather after long rallies.
Against a basket of currencies the dollar sat at 90.923, which is about half a percent above a two-and-a-half-year low it hit on Friday as short sellers piled in. "Things are just stalled at the moment, but they haven't changed," said Westpac currency analyst Imre Speizer.
Uncertainty around Brexit, around the progress of a fiscal spending package through US Congress and around the outcome of Thursday's ECB meeting have traders temporarily cautious, he said.
"We think risk sentiment is going to stay strong," he added. "But there's a few potential spanners in the works, so people are thinking: 'Lets just hold off pushing the market even higher,' and that's why everything's just stopped where it is."
The Australian dollar found support from decade-high consumer sentiment, but struggled to advance very far and sat at $0.7441. The kiwi held at $0.7041.
The Japanese yen weakened slightly against the dollar overnight and held there on Wednesday at 104.15 per greenback.
Britain faces a chaotic split from the European Union if no trade deal can be struck by the end of the year because Brexit transition arrangements would expire without any measures to protect about $1 trillion in annual trade from tariffs and quotas.
Volatility gauges for the pound have soared to reflect what traders reckon is a wild ride ahead. One-week sterling implied volatility hit a fresh eight-month high on Wednesday and the premium of puts to calls is elevated.
"Put a gun to my head and I'd be a buyer of sterling, as I see the risk skewed that Boris would come back with some sort of agreement," said Chris Weston at Melbourne broker Pepperstone, though he added rewards for such a bet might be limited.
"Broad positioning is short sterling, but not at extremes by any means. This limits the prospect we get an exaggerated short-covering rally to say $1.3800 or $1.4000."
Elsewhere investors are tracking negotiations over US coronavirus aid, with the Trump administration proposing a $916 billion package on Tuesday after congressional Democrats rejected a slimmer plan.
US job openings data is due later on Wednesday, and on Thursday the main focus is on the ECB. Investors expect easing but are unsure what, if anything the bank may do or say about a tearaway euro that has gained 8% this year.
"It will be a very difficult task for the central bank to weaken the euro," ING strategists said in a note.
"There is a risk is that the press conference bias pushes the euro higher, particularly if the forward guidance beyond the December easing package is not overly strong.