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Pound Drops As Cox Says Legal Risks Of U.K. Being Tied To EU Remains Unchanged

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The pound declined against its key counterparts in the European session on Tuesday, erasing its early gains, after Attorney General Geoffrey Cox admitted that the legal risk of the UK being locked to EU rules after Brexit "remains unchanged" despite recent changes struck in deal last night.

Speaking to the House of Commons, Cox said that the legal risk of the UK being trapped in the backstop remained unchanged and the new concessions secured from the EU would only 'reduce' this risk.

"The legal risk remains unchanged. The UK would have no internationally lawful means of exiting the Protocol's arrangements, save by agreement," Cox told MPs.

"The question for the House is whether, in the light of these improvements, as a political judgement, the House should now enter into those arrangements," he advised.

Cox's advice undermines the possibility of the PM's "improved deal" being passed through Parliament.

Prime Minister Theresa May's Brexit deal will be put to vote in the Commons from 7 pm U.K. time.

Data from the Office for National Statistics showed that the UK economy expanded at a faster-than-expected pace in January, supported by growth in all main sectors such as manufacturing, services and constructions.

Gross domestic product grew 0.5 percent month-on-month in January after a 0.40 percent decline in December. Economists had expected a 0.20 percent increase.

Industrial production rose 0.6 percent from December, when it fell 0.5 percent. Economists were looking for a 0.20 percent growth.

Separate data showed that the visible trade deficit in January widened to GBP 13.08 billion from GBP 10.89 billion a year ago. In December, the shortfall was GBP 12.68 billion. Economists had forecast a GBP 12.2 billion deficit.

The currency was higher in the Asian session, as Theresa May secured significant changes to her divorce deal from the European Union, helping ease concerns over the backstop arrangement.

The pound lost 2.1 percent to 1.3005 against the greenback, following near a 2-week advance to 1.3287 at 6:00 pm ET. The pair had ended Monday's trading at 1.3147. Should the pound continue its decline, 1.29 is likely seen as its next support level.

Data from the Labor Department showed a modest increase in U.S. consumer prices for February.

The report said the consumer price index rose by 0.2 percent in February after coming in unchanged for three straight months. The uptick in consumer prices matched economist estimates.

Having strengthened to a 1-week high of 147.79 against the yen at 6:00 pm ET, the pound reversed direction and pulled back to 144.58. The pair was valued at 146.22 when it ended deals on Monday. Further downward trading is likely to take the pound to a support around the 143.00 level.

The U.K. currency depreciated to 1.3116 against the Swiss franc, losing around 2.3 percent from near a 10-month high of 1.3423 touched at 6:00 pm ET. The pound-franc pair was quoted at 1.3290 at yesterday's close. The pound is likely to challenge support around the 1.29 level, if it extends its slide.

The pound fell to 0.8654 against the euro, marking a 2.1 percent drop from near a 2-year high of 0.8475 seen at 6:00 pm ET. At Monday's close, the pair was worth 0.8548. Next key support for the pound is possibly seen around the 0.88 level.

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