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Dollar pushes higher, sterling down 1% on Brexit fears

01/09/2017

The dollar pushed higher against a basket of the other major currencies on Monday as the U.S. jobs report for December supported the case for rate hikes, while sterling tumbled amid worries over the prospects of a ‘hard Brexit’.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose 0.28% to 102.46.

The Labor Department said Friday the U.S. economy added 156,000 jobs in December, falling short of economists forecast for jobs growth of 178,000.

The report also showed that the annual rate of wage growth rose to 2.9% in December from a year earlier, the strongest since 2009.

The employment data indicated that the economy is on a strong enough footing for the Federal Reserve to keep pushing up interest rates.

The Fed has indicated that three quarter-percentage-point interest rate increases are on the cards for 2017.

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

The dollar was little changed against the yen, with USD/JPY at 117.05, down from an intra-day high of 117.53.

The euro slid lower, with EUR/USD losing 0.18% to trade at 1.0514.

The pound was sharply lower against the dollar and the euro, with GBP/USD shedding 1.14% hit 1.2141, the lowest level since October 31.

EUR/GBP hit highs of 0.8679, the strongest level since November 15 and was last at 0.8658, up 0.97% for the day.

The selloff in sterling came as comments by British Prime Minister Theresa May on Sunday 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 European Union.

On Monday, a Downing Street spokeswoman said that May “hasn’t ruled anything in or out” ahead of Brexit negotiations and wants the best deal for businesses to trade with the single market.

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 2.46% to trade at 3.7338 after starting the day at 3.6433.