Pound Hit as Boris seeks a hardline on Brexit Deadline Pledge.

On Tuesday, the GBP fell after reports emerged that Boris Johnson was seeking a hard line on the Brexit deadline. 

The GBP dropped as low as 0.7% to $1.3236, as its Friday's 1-1/2 year peak of $1.3516 looked increasingly like a near-term peak following massive relief rally after last week's election.

Boris' revised Withdrawal Agreement Bill will require the U.K. to have arrangements to leave the E.U. be in place by Dec 31 next year.

The move dashes hope that Boris will take a flexible approach to the end-2020 deadline for a trade deal with the E.U. after Britain leave the bloc.

It now looks almost sure that it will happen on Jan 31 after the landslide Conservative victory.

"Common sense suggests that crafting a trade deal would take at least more than a year, so markets had assumed that the transition period would be extended," said Masafumi Yamamoto, 

Masafumi Yamamoto is the chief currency strategist at Mizuho Securities.

"It seems like the big majority Johnson won is enabling him to take a hardline approach, which the market doesn't like so much... Considering the U.K. economy looks set to deteriorate as people and companies start to leave the country because of Brexit, sterling's short-covering rally is over," Masafumi added.

The pound last traded at $1.3286, down 0.3% from the late U.S. levels.

The Aussie lost 0.2% to $0.6868 after the RBA opened the door to another rate cut as early as February, should household income stay depressed or the labor market becomes worse.

On Tuesday, minutes of its December policy meeting was out. They showed the bank's board was concerned that the wage growth was too weak to revive either inflation or consumption.

The US-China trade deal

Moves in other currencies were limited as investors sought more details on last week's interim trade deal between the U.S. and China.

The trade deal has broadly capped safe-haven currencies such as the yen while supporting risk-sensitive currencies.

The dollar traded at 109.56 against the yen, up 0.05% from late U.S. levels, having gained 0.15% on Monday to edge near a six-month high of 109.73 hits on Dec 2.

The euro stood at $1.1147, maintaining its uptrend from its seven-week low of $1.1098 touched on Nov 29.

The deal seeks to reduce some U.S. tariffs on Chinese goods in exchange for increased Chinese purchases of some U.S. goods.

"There is some skepticism, but on the whole, the deal is likely to lift corporate sentiment. Even though we may not see lively market moves in the next couple of weeks due to holiday seasons, we are likely to see a gradual rise in risk assets," said Masaru Ishibashi. 

Masaru Ishibashi is the joint general manager of trading at Sumitomo Mitsui Bank.

"Some emerging market currencies are already starting to price that in," he added.

The Mexican peso rose to a five-month high of 18.921 per dollar. The new trade deal between the U.S. and Canada signed last week to replace the 1994 North American Free Trade Agreement (NAFTA) boosted the peso.

Economic data from the U.S. also underpinned the improved mood around the global economy.

Data out on Monday showed the U.S. economy remained robust, with U.S. homebuilder sentiment surging to its most optimistic reading in more than 20 years - way past market expectations for a flat reading.