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Dollar dips, Brexit fears pressure sterling

01/09/2017

The dollar edged lower against a basket of the other major currencies on Monday, while sterling was sharply lower as fears over prospects for a ‘hard Brexit’ weighed.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, eased to 102.08.

Demand for the greenback continued to be underpinned after Friday’s U.S. nonfarm payrolls report for December, which showed a slowdown in hiring but the fastest wage growth in over seven years, supported the case for rate hikes this year.

The Federal Reserve raised interest rates in December and indicated that it expects to hike rates three more times in 2017.

Higher rates boost the dollar by making the currency more attractive to yield-seeking investors.

Boston Fed President Eric Rosengren on Monday called for the U.S. central bank to step up the pace of interest rate increases, warning that inflation could overshoot its target if it does not.

The dollar was lower against the yen, with USD/JPY sliding 0.45% to 116.48, down from an intra-day high of 117.53.

The euro pushed higher, with EUR/USD rising 0.2% to 1.0554.

The pound was sharply lower against the dollar and the euro, with GBP/USD touching lows of 1.2125, the lowest level since October 28, before pulling back to 1.2144.

EUR/GBP hit highs of 0.8690, the strongest level since November 15 and was last at 0.8688, up 1.33% for the day.

The selloff in sterling came after British Prime Minister Teresa May on Sunday said that the country would not be keeping "bits" of European Union membership.

The remarks were seen as an indication that the UK won’t try to negotiate continued full access to the European single market when it leaves the EU.

Sterling failed to find support after May said on Monday it was wrong to say a "hard Brexit" was inevitable.

Elsewhere, the Turkish lira fell to a fresh record low against the dollar on Monday after ratings agency Moody's said that bank profits will be hit by an increase in bad loans this year and warned of a "general worsening" in the investment climate in the country.

USD/TRY jumped 2.48% to trade at 3.7342 after starting the day at 3.6433.