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Forex – Sterling Hits 1-1/2 Month Lows as Dollar Continues to Gain

The dollar remained supported after Federal Reserve Chairman Jerome Powell said Tuesday that the U.S. economic outlook remains bright, bolstering bets on further Fed rate hikes this year.

The remarks bolstered expectations that the U.S. central bank may deliver four rate increases this year, rather than the three it had earlier signaled.

Expectations of rising borrowing costs tend to buoy the dollar, as higher rates make the U.S. currency more attractive to yield-seeking investors.

Investors were awaiting a second day of congressional testimony by Powell later in the day, to see if the Fed head would reaffirm his hawkish view of the economy.

Sterling came under pressure after data on Thursday showing that UK factory activity growth hit its lowest level in eight months in February amid uncertainty over Brexit.

Research firm Markit said its manufacturing purchasing managers’ index fell to 55.2last month, from 55.3 in January.

The pound was also pressured lower by renewed worries over Brexit after British Prime Minister Theresa May said the EU’s draft legal text published on Wednesday would undermine Britain and threaten its constitutional integrity.

Sterling was lower against the euro, with EUR/GBP rising 0.15% to 0.8875.

In the euro zone, data on Thursday showed that manufacturing activity slowed slightly in February but remained robust.

The final reading of the manufacturing PMI for the euro zone fell to 58.6 in February from 59.6 in January.

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