The Pound Sterling (GBP) recoups initial losses against the US Dollar (USD) during European trading hours on Wednesday after correcting to near 1.3460 earlier in the day.

The GBP/USD pair bounces back as the US Dollar (USD) gives up initial gains despite firm hopes that the United States (US) and the European Union (EU) will reach a trade deal soon.

The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, falls back to near 99.50 from the intraday high of 99.85.

On Tuesday, US President Donald Trump expressed confidence in a post on Truth.Social that the EU is increasing efforts to reach a bilateral trade deal. "I was extremely satisfied with the 50% Tariff allotment on the European Union, especially since they were ‘slow walking'. I have just been informed that the EU has called to quickly establish meeting dates. This is a positive event, and I hope that they will," Trump wrote.

Increasing optimism over the US-EU trade deal has helped the US Dollar claw back almost the losses seen on Friday, when US President Trump threatened to impose a flat 50% tariff on imports from the EU.

Another reason behind the recent strength in the US Dollar is the upbeat US Consumer Confidence data for May. The data, released on Tuesday, showed that Consumer Confidence increased substantially to 98.0 after deteriorating for five consecutive months. The commentary from the Conference Board showed that de-escalation in US-China trade tensions contributed significantly to lifting households' mood.

Source: FXStreet