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Worries over the U.S. economy losing steam as well as a shock contraction in Chinese trade have fanned worries about a sharp global slowdown, which will likely keep the Fed from tightening monetary policy further this year.

The dollar index weakened by 0.12 percent to 95.48.

·       “There is a strong dislike for the dollar given Fed expectations, but at the same time there is not a compelling replacement,” said Sim Moh Siong, currency strategist at Bank of Singapore. “Over the next 6-12 months, the dollar should trend lower.”

Interest rate futures markets are pricing in no further U.S. rate hikes in 2019.

·       The euro gained 0.1 percent on the greenback to $1.1485, while  sterling gained 0.3 percent to $1.2901 ahead of the vote.

Sterling will be in focus as British Prime Minister Theresa May must win a vote in parliament later on Tuesday to get her Brexit deal approved or risk a chaotic exit for Britain from the European Union. The numbers are not in May’s favour and her chances of winning the vote look extremely slim. May needs to secure 318 votes to win.

·       According to Karen Jones, analyst at Commerzbank, EUR/USD has not sustained the break broke above the 1.1500 resistance, and is consolidating very near term.

Key Quotes

“We favour a recovery to the 1.1623 October high and the 1.1616/23 200 day ma and mid-October high and slightly longer term we target 1.1786, the 55week ma. Dips lower are expected to remain well supported by the 55 day ma at 1.1385 and should be contained by the near term uptrend at 1.1320.”

“Failure at 1.1267 will trigger losses to the 1.1216 recent low and the 61.8% Fibonacci retracement of the 2017-18 advance at 1.1186. Please note that we continue to regard the 1.1216 recent low as an interim low for the market.”

·       Theresa May appears to be on course for a crushing defeat in the House of Commons as Britain’s bitterly divided MPs prepare to give their verdict on her Brexit deal in the “meaningful vote” on Tuesday. 

With Downing Street all but resigned to losing by a significant margin, Guardian analysis pointed to a majority of more than 200 MPs against the prime minister.

Labour sources said that unless May made major unexpected concessions, any substantial margin against her would lead Jeremy Corbyn to call for a vote of no confidence in the government – perhaps as soon as Tuesday night. But since Conservative MPs are unlikely to offer Corbyn the backing he would need to win a no-confidence vote, he would then come under intense pressure to swing Labour’s weight behind a second referendum.

Cabinet ministers have not yet been told how May plans to keep the Brexit process on track if her deal is defeated – and they remain split on how she should proceed. Leavers are convinced that the prime minister should return to Brussels and press for fresh concessions, while remainers hope she will seek a compromise with Labour

·       What happens if MPs back the deal?

If MPs back the deal (most observers think this is highly unlikely given the large numbers of MPs who have come out against it) its parliamentary journey is effectively over. The House of Lords only gets to debate the motion and doesn’t have a vote. Once the U.K. side of the ratification process is complete, the European Parliament must approve the deal before it is finalized.

If that hurdle is cleared (and most expect it would be) then the deal would come into force when the U.K. leaves the EU on March 29, and immediately enters a standstill transition period lasting 21 months, with the option to extend for "up to one or two years," as per the text of the Withdrawal Agreement.

What happens if MPs don’t back the deal?

In a word: uncertainty. Under the terms of the amendment put down by Tory backbencher Dominic Grieve last week, May must return to the House of Commons with an alternative motion within three sitting days (that's Monday next week) setting out what she plans to do next. In the ordinary run of things this motion would not automatically be amendable, but Speaker John Bercow has shown his willingness to upturn parliamentary convention, so this could be the moment that MPs begin putting forward alternative Brexit plans for indicative votes.

What will Labour do?

The Labour opposition has committed itself to putting forward a motion of no confidence in the government if the vote on May’s deal is lost. Leader Jeremy Corbyn has been coy about precisely when this will be but there have been reports that MPs have been told to expect it within hours of defeat, and for the vote to be held on Wednesday.

There is talk of parliament ‘taking control.’ What does that mean?

If the deal is voted down, a small group of senior MPs plan to amend the government’s motion next week, in a way that could change House of Commons convention, giving backbench MPs more power to bring forward motions setting out the business of the Commons — and thus seizing control of the Brexit agenda.

What about a second referendum?

This would remain an option, but is one that would probably come from MPs. May has repeatedly, in very strong terms, stated her opposition to such an outcome and is unlikely to suggest it as a compromise, unless it were a simple choice between her deal and no deal. She would, however, have to present that plan sure in the knowledge that MPs would try to amend it to add a "Remain" option.

·       “Interestingly, speculators have been betting that this outcome could lead to a possible delay to Brexit from 29 March to July (after the EU Parliament elections in May) to allow for fresh elections or a second referendum,” Philip Wee, currency strategist at DBS, said in a note.

But other analysts expect the pound will take a major beating if May loses the vote by a wide margin.

·       The United States and North Korea plan to hold high-level talks in Washington as soon as this week to discuss a second summit of their leaders, following a prolonged stalemate in nuclear talks, South Korean media said on Tuesday.

The meeting, led by U.S. Secretary of State Mike Pompeo and senior North Korean official Kim Yong Chol, would happen on Thursday or Friday, the Chosun Ilbo said, citing an unnamed diplomatic source familiar with the talks.

Both sides are expected to finalize the date and location of a second summit between U.S. President Donald Trump and North Korean leader Kim Jong Un, and the North’s envoy is likely to meet Trump, the paper said.

·       China's finance ministry said on Tuesday that it will step up fiscal expenditure this year and implement larger tax and fee cuts.

At the same time, the government said it will reduce its general expenditures by more than 5 percent, the finance ministry said in a statement provided before a news conference.

The statement didn't specify areas where expenditure would be reduced.

The central bank, in a separate statement on Tuesday, said it will maintain prudent monetary policy, keeping it neither too tight nor too loose, and strengthen the counter-cyclical adjustments.

Monetary policy will be made more forward-looking, flexible and targeted, said the bank.

 ·       Oil prices rose 1 percent on Tuesday amid supply cuts led by producer club OPEC and Russia, although a darkening economic outlook capped gains.

International Brent crude oil futures were at $59.64 per barrel at 0257 GMT, up 65 cents, or 1.1 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures  were at $51.09 per barrel, up 58 cents, or 1.2 percent.

“The impact of OPEC+ (OPEC and others including Russia) cuts, Iran sanctions and lower month-on-month growth in U.S. production should help to support oil prices from current levels,” U.S. bank J.P. Morgan said in a note.

 ·       “Iranian exports have already fallen sharply and are likely to remain at around 1.3 million barrels per day (bpd) in 2019, 1.3 million bpd down vs their1H18 average,” HSBC said in its 2019 oil market outlook.

“The outlook for the global economy continues to be highly uncertain,” HSBC said.

The bank said it had cut its average 2019 Brent crude oil price forecast by $16 per barrel, to $64 per barrel, citing surging U.S. production and an  “increasingly uncertain demand backdrop”.