Currencies

U.S. dollar dips as Brexit trade deal nears; sterling gains

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The new £1 pound coin is seen alongside U.S. dollar bills and euro notes on April 4, 2017, in Bath, England.
Matt Cardy | Getty Images

The dollar slipped on Wednesday, after gaining for three straight sessions, as risk appetite rose on the expectation of an imminent Brexit trade deal between the UK and the European Union.

Sterling and the euro took off against the greenback after the Brexit headlines, as did currencies tied to higher risk appetite such as the Australian, Canadian, and New Zealand dollars.

Britain and the European Union appeared close to clinching a long-elusive trade agreement on Wednesday. A reporter with Britain's Daily Mail said a deal had already been done, and speculation flew that British Prime Minister Boris Johnson would make an announcement on Wednesday evening.

U.S. Treasury yields rose in the wake of the Brexit news, in line with those in Europe and the UK.
In afternoon trading, the dollar fell 0.1% to 90.39.

The dollar index has weakened more than 6% this year as investors bet the U.S. Federal Reserve will keep its monetary policy ultra-accommodative. Expectations for further declines by the dollar are helping buoy stock markets and emerging-market currencies.

"We have a lower uncertainty premium compared to March. The addition of the vaccines...has basically established what we have known since the summer which is a weaker dollar," said Mazen Issa, senior FX strategist, at TD Securities in New York.

David Rosenberg, chief economist and strategist at Rosenberg Research in a research note said technical measures suggested an increasing likelihood of an oversold bounce in the dollar.
"Longer-term, the dollar remains negative— trend, moving averages and intermediate-term momentum all remain in downtrends," he added.

U.S. data, meanwhile, was mixed on Wednesday but had little currency impact.

Initial jobless claims unexpectedly fell last week, though remained elevated, and a separate report showed consumer spending fell last month for the first time since April. U.S. new home sales were disappointing as well.

The euro rose 0.2% to $1.2180. The single currency earlier this month hit its highest in more than two-and-a-half years.

Sterling extended gains versus the dollar, rising above $1.35. The pound which had earlier firmed on the lifting of a French border blockage, last traded up 0.9% at $1.3482. Against the euro, the pound jumped 0.8% at 90.33 pence.

The Brexit headlines overshadowed President Donald Trump's threat to veto the U.S. stimulus bill. Trump said the long-awaited stimulus package should be amended to increase the amount in the stimulus checks -- potentially disrupting the bill.

Elsewhere, the Australian dollar gained 0.7% against the dollar to US$0.7575, boosted in part by signs that a small COVID-19 outbreak in Sydney would be contained. The New Zealand dollar also rose 0.7% to US$0.7091.