By Anneken Tappe, MarketWatch

British pound takes a dive

The U.S. dollar continued its move higher on Tuesday, ahead of President Donald Trump's State of the Union address in the evening.

Investors will be watching for indications from the president on how U.S.-China trade relations are progressing, as well as remarks around infrastructure spending and border wall funding. The market might prove sensitive to headlines surrounding U.S.-China talks and the potential for a resolution to the border-funding impasse that closed the government for 35 days in December and January.

Read:Here's what this year's State of the Union address means for stock-market investors (http://www.marketwatch.com/story/think-of-it-as-the-state-of-the-stock-market-trumps-state-of-the-union-will-be-tracked-closely-on-wall-street-2019-02-05)

And:How the stock market has historically reacted to State of the Union speeches (http://www.marketwatch.com/story/how-the-stock-market-has-reacted-to-state-of-the-union-speeches-2018-01-23)

The ICE U.S. Dollar Index strengthened, albeit modestly, for the second day in a row (http://www.marketwatch.com/story/dollar-starts-the-week-stronger-across-the-board-2019-02-04), adding 0.2% to 96.061.

Don't miss:Dollar bulls still reign -- and that's good news for bears, analysts say (http://www.marketwatch.com/story/dollar-bulls-still-reign-and-thats-good-news-for-bears-analysts-say-2019-02-05)

Also read:Why the stock market might not cheer a weaker U.S. dollar after all (http://www.marketwatch.com/story/why-the-stock-market-might-not-cheer-a-weaker-us-dollar-after-all-2019-02-04)

The British pound suffered from sluggish economic data and new Brexit headlines. Prime Minister Theresa May said Tuesday that she wants to see changes to the backstop but not a removal of it from the Brexit deal, according to reports. The so-called backstop would govern the border between Northern Ireland and the Republic of Ireland, which is a member of the European Union.

May has been trying to secure changes to the existing deal (http://www.marketwatch.com/story/just-weeks-to-make-a-deal-whats-next-for-brexit-2019-01-30) ahead of the next vote of Parliament on the proposal, scheduled for Feb. 13.

Earlier, sluggish economic data weighed on the pound. The CIPS services PMI dropped to 50.1 in January, undercutting expectations. This is especially notable as 50 denotes the threshold of economic expansion.

"Today's print was the lowest in nearly three years and suggests that the British economy is flatlining after losing momentum in [the second half of 2018]," said Dean Popplewell, vice president of market analysis at Oanda.

Sterling dropped to $1.2957 from $1.3036.

The euro was weaker at $1.1410, versus $1.1437 late Monday. Economic data from the eurozone was mixed, with stronger than expected services and composite purchasing managers' indexes for January, but weaker retail sales.

Down under, the Reserve Bank of Australia stuck with its upbeat narrative on the Australian economy at its first policy meeting of the year, while leaving its benchmark interest rate at 1.5% and forecasting a gradual lift in inflation this year and next year.

The Australian dollar traded higher earlier in the session, but retraced its gains to be little changed at $0.7230 in the New York afternoon.

Check out:Why the Australian dollar is the world's riskiest currency (http://www.marketwatch.com/story/why-the-australian-dollar-is-the-worlds-riskiest-currency-2019-01-29)

(END) Dow Jones Newswires

February 05, 2019 15:35 ET (20:35 GMT)