© Reuters.  Pound drops on UK political turmoil, dollar pushes higher© Reuters. Pound drops on UK political turmoil, dollar pushes higher

Investing.com – The pound fell on Monday following weekend news reports that British Prime Minister Theresa May could be facing a leadership challenge at a critical juncture in Brexit talks, while the dollar pushed higher against a currency basket.

GBP/USD was down 0.81% to 1.3084 by 03:28 AM ET (08:28 AM GMT), retreating from the one-week peak of 1.3229 set on Friday after better-than-expected British manufacturing data.

Sterling was pressured lower after news reports over the weekend said that forty members of parliament had agreed to sign a letter of no confidence in Prime Minister May, setting the stage for a formal leadership challenge.

The pound came under additional pressure after UK Brexit Secretary David Davis said on Sunday that Britain would not have to give a figure for a financial settlement with the European Union, highlighting the lack of progress in the divorce negotiations.

The euro rose to more than one-week highs against sterling, with EUR/GBP climbing 0.6% to 0.8895.

The euro was lower against the firmer dollar, with EUR/USD sliding 0.24% to 1.1638.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.23% at 94.52 as investors remained focused on planned U.S. tax reforms.

The index ended the previous week down 0.61% amid investor disappointment that a proposed U.S. corporate tax cut could be delayed until 2019 instead of being put in place this year.

Senate Republicans unveiled a tax plan on Thursday that differed from the one crafted by House Republicans, highlighting the challenges to reconciling the differences between the two plans with just a short time before the year-end deadline they have set to pass it.

Hopes of tax reform have helped boost the dollar since mid-September. Some traders believe tax reforms could bolster growth, adding pressure on the Federal Reserve to raise interest rates, known as the “Trumpflation” trade.

The dollar was a touch lower against the yen, with USD/JPY dipping to 113.48.

Elsewhere, the Australian and New Zealand dollars were lower, with AUD/USD down 0.16% to 0.7648 and NZD/USD losing 0.27% to trade at 0.6919.

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