* Dollar falls on weaker-than-expected manufacturing data
* Sterling recovers but under pressure amid Brexit chaos
* Plummeting pound: https://tmsnrt.rs/2N6T2JO
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Tom Westbrook
SINGAPORE, Sept 4 (Reuters) - The dollar pulled back on
Wednesday as weak U.S. manufacturing stoked wagers on aggressive
policy easing, while the British pound recouped losses in the
wake of a parliamentary vote that opened the door for another
Brexit delay.
Manufacturing activity in the world's biggest economy
contracted for the first time in three years last month,
according to the Institute for Supply Management. That knocked the wind from the greenback and rallied the
bond market as investors increased bets on a couple of Federal
Reserve rate cuts before Christmas.
A 25-basis-point cut is now fully priced in, while yields on
benchmark 10-year Treasuries US10YT=RR , which fall when prices
rise, dropped to their lowest in two years.
As a result, the greenback gave ground to the yen JPY= ,
the Australian dollar AUD=D3 , and the pound GBP=D3 . Sterling
climbed as high as $1.210 in early Asian trade, helped by the
possibility that a no-deal Brexit may yet be averted.
"The expectation that the Fed will come to the rescue has
increased," said Rodrigo Catril, senior FX strategist at
National Australia Bank in Sydney.
"But it's not a capitulation on the dollar. It's just merely
stopped the recent rise of the dollar."
Against a basket of currencies the dollar .DXY traded
slightly lower at 98.944, which was 0.4% below the two-year peak
it touched on Tuesday.
The sterling was pushed higher after British lawmakers voted
to take control of the parliamentary agenda and scheduled
another vote on Wednesday. If the vote is successful, it would
force Prime Minister Boris Johnson to seek more time from the
European Union and prevent leaving the bloc without a divorce
deal. The prospect of a so-called "hard Brexit" has been a major
source of worry for currency markets. The pound had dropped
under $1.20 and hit its lowest since a flash crash in October
2016 on Tuesday.
More than three years after the UK voted in a referendum to
leave the EU, the Brexit process remains unresolved and a source
of major political chaos. Possible outcomes for Britain range
from a turbulent "no-deal" exit to abandoning the whole
endeavour.
Johnson has said he will now push for a snap election,
adding another major source of political uncertainty for
sterling.
"We still just can't say what the end game will be," said
Yukio Ishizuki, senior strategist at Daiwa Securities.
"Die-hard Brexiteers want a Brexit no matter what while the
Remainers are deadly opposed. This is not an issue in which both
sides can come halfway for a compromise."
The euro EUR=D3 was steady around $1.2087, a recovery from
a 28-month low against the dollar that it touched on Tuesday, as
investors priced in deeper negative interest rates for longer in
the euro zone.
The yen rose to 105.99 per dollar before easing slightly to
trade at 105.86 by 0008 GMT.
There were few signs of a breakthrough in U.S. China trade
negotiations with President Donald Trump taking to Twitter to
warn he would be "tougher" on Beijing in a second term if trade
talks dragged on.