U.S. dollar inches up, pound gains after UK, EU strike Brexit trade deal

NEW YORK (Reuters) - The U.S. dollar edged higher on Thursday, while sterling gained in a holiday-thinned session, after Britain and the European Union struck a post-Brexit trade deal, raising hopes the United Kingdom can avoid a turbulent economic departure at the end of the year.

Financial markets are closed on Friday for Christmas day.

Britain on Thursday clinched a trade deal with the European Union, seven days before it exits one of the world’s biggest trading blocs in its most significant global shift since the loss of empire.

Sterling pared gains after the Brexit trade announcement, while the dollar retraced some of its losses, as investors have already priced in the deal and have taken profits.

“If we parse through the litany of self-congratulatory headlines pouring out, we get the sense that sterling/dollar traders have ‘bought-the-rumor’ and are now simply ‘selling the fact’ given the lack of any new positive surprises announced so far…they more or less got what they priced in,” said Erik Bregar, head of FX strategy, at Exchange Bank of Canada.

In early afternoon, the dollar index was slightly higher at 90.33. On the week, the dollar index was up 0.4%, enough to post its highest weekly gain since mid-November.

So far this year, however, the dollar has fallen 6.4%, its worst yearly performance since 2017.

Sterling rose as high as $1.3620. It was last up 0.3% at $1.3544, with the potential to rise to a 2-1/2 year high above $1.3625.

The pound also rose to a three-week peak against the euro at 89.54 pence. The euro was last down 0.4% versus sterling at 89.95 pence.

“From what we know so far, this (trade deal) is merely enough to avoid a cliff-edge scenario and keep goods from queuing up at borders, but it is not a broad-based trade agreement that includes services,” said Andreas Steno Larsen, chief global FX and rates strategist at Nordea in Copenhagen,

“So this is an OK scenario for the UK but probably not much more than that, which is also why sterling is not truly celebrating the deal.”

Currency markets also seemed to have shrugged off President Donald Trump’s criticism of the fiscal relief package earlier approved in Congress, which could put the bill in limbo.

Republicans and Democrats in the U.S. House of Representatives on Thursday blocked attempts to alter a $2.3 trillion coronavirus aid and government spending package, leaving its status in doubt after Trump demanded extensive changes to the legislation. Against currencies tied to higher risk appetite, the dollar weakened. The Australian dollar rose 0.3% to US$0.7599 while the New Zealand dollar was up 0.2% at US$0.7109.

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Currency bid prices at 1:00PM (1800 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 90.3150 90.3020 +0.02% +0.00% +90.3850 +90.1510

Euro/Dollar $1.2184 $1.2187 -0.03% +8.67% +$1.2216 +$1.2178

Dollar/Yen 103.6500 103.5400 +0.12% -4.62% +103.7650 +103.5000

Euro/Yen 126.29 126.19 +0.08% +3.56% +126.4900 +126.1900

Dollar/Swiss 0.8916 0.8885 +0.34% -7.87% +0.8917 +0.8870

Sterling/Dollar $1.3537 $1.3500 +0.28% +2.07% +$1.3618 +$1.3495

Dollar/Canadian 1.2813 1.2846 -0.25% -1.36% +1.2853 +1.2813

Aussie/Dollar $0.7602 $0.7579 +0.32% +8.35% +$0.7607 +$0.7571

Euro/Swiss 1.0861 1.0819 +0.39% +0.09% +1.0864 +1.0824

Euro/Sterling 0.9000 0.9029 -0.32% +6.46% +0.9035 +0.8954

NZ $0.7112 $0.7096 +0.20% +5.66% +$0.7117 +$0.7092

Dollar/Dollar

Dollar/Norway 8.6240 8.6435 -0.04% -1.50% +8.6445 +8.6120

Euro/Norway 10.5100 10.5390 -0.28% +6.83% +10.5420 +10.5014

Dollar/Sweden 8.2545 8.2725 -0.42% -11.69% +8.2934 +8.2490

Euro/Sweden 10.0553 10.0982 -0.42% -3.95% +10.1090 +10.0550