By Anneken Tappe

Major currencies like the U.S. dollar and the euro were muted early Tuesday, while the British pound led developed market gainers on the back of supportive wage data.

In the U.S., traders are waiting to see whether the Treasury will label China a currency manipulator in a report on the foreign exchange market expected in coming days. While President Donald Trump has been saying that China is manipulating its yuan, and Beijing in return rejecting the claims, the U.S. Treasury never actually labeled the Asian giant as such.

The ICE U.S. Dollar Index edged into negative territory at 95.027. One dollar last bought 6.9119 yuan in Beijing , down 0.1% from Monday, and 6.9140 yuan offshore , down 0.1%.

Check out:The stock retreat is only the latest reason analysts believe the dollar rally is over (http://www.marketwatch.com/story/the-stock-retreat-is-only-the-latest-reason-analysts-believe-the-dollar-rally-is-over-2018-10-15)

In the U.K., wage data from August showed wages growing at their fastest pace in almost 10 years (http://www.marketwatch.com/story/uk-wage-growth-fastest-in-almost-10-years-2018-10-16-4485395). Still "we think markets are being overly optimistic on both Brexit risk and the economic outlook, and the two are intertwined."

The British pound last bought $1.3284, up from $1.3151 late Monday in New York, making it the best performing among developed market currencies on Tuesday, according to FactSet.

Meanwhile, Britain's Telegraph newspaper reported (https://www.telegraph.co.uk/politics/2018/10/16/cabinet-told-force-theresa-may-drop-chequers-plan-will-face/?WT.mc_id=tmg_share_tw) that Prime Minister Theresa May could face a no-confidence vote within days if she doesn't drop her Chequers Brexit plan. This comes just a day after the she told parliament to keep calm and that negotiations with Brussels were in the final stages.

The New Zealand dollar was also a strong performer, buying $0.6592, up 0.6% from late Monday in New York, according to FactSet, on the back of a stronger than expected third quarter consumer price inflation read late Monday.

Elsewhere in Europe, Italy's government approved a budget proposal for 2019 (http://www.marketwatch.com/story/italys-government-oks-draft-budget-that-would-widen-deficit-2018-10-15) late Monday, which could see the budget deficit of the European Union's fourth largest economy balloon to 2.4% of GDP. Italy is expected to run into some trouble with the Brussels and EU budget rules over the proposal.

See:Italian stocks flirt with best day in 3 weeks amid EU budget clash (http://www.marketwatch.com/story/italian-stocks-flirt-with-best-day-in-3-weeks-amid-eu-budget-clash-2018-10-16)

"The EU now has a week to make its initial assessment. As noted yesterday, some polls suggest that the popularity of the Italian government has risen during this budget drama and so Salvini and Di Maio really have no reason to give in to EU criticism," wrote Win Thin, global head of currency strategy at Brown Brothers Harriman.

The full draft budget law will be sent to the Italian parliament by Saturday. Lawmakers will need to approve it by the end of the year.

The euro was muted, last buying $1.1580, little changed from Monday. Besides political headlines, euro traders also digested economic data from Germany, where the ZEW indicator came in lower than expected, which was attributed to lingering Brexit uncertainties.

(END) Dow Jones Newswires

October 16, 2018 13:56 ET (17:56 GMT)