Dollar ends three weeks of decline as Brexit sours sentiment

LONDON: Pressure was easing on the dollar on Friday, with the currency set to end three straight weeks of declines, while sterling suffered losses amid fears a post-Brexit trade deal might not be reached before the end of 2020.

Overnight, hopes of a global economic rebound and a fading pandemic in 2021 saw investors taking bets on riskier currencies linked to rising commodity prices such as the Australian and Canadian dollars, both of which hit 2018, highs.

But the U.S. dollar made a comeback in early European trading as the mood soured and Brexit worries added to the delays facing a new U.S. fiscal stimulus.

At 1144 GMT, the pressure was off the dollar, which was back up 0.3pc against a basket of major currencies, trading at 91.036 and moving away from the two-and-a-half-year low of 90.471 it reached a week ago.

"Overall it's a risk-off move", said Kit Juckes, a foreign exchange strategist at Societe General. Given the dollar's recent losses, he said, it wasn't surprising to see some investors were unfolding some of their positions.

He added that the state of the post-Brexit trade talks was weighing on the market. Britain is now more likely to leave the European Union on Dec. 31 without a trade deal than with a deal, an EU official quoted the head of the European Commission as telling the bloc's 27 national leaders.

Sterling suffered heavy losses and was down about 0.8pc at $1.3185 before a weekend of brinkmanship. British and EU negotiators have been told they have until the end of Sunday to decide whether a trade deal is possible.

Options market moves show traders bracing for chaos, with one-week implied volatility at a nine-month high and the premium of sterling puts to calls near its highest since April as investors pay for downside protection.

The euro was also retreating against the dollar, losing 0.23pc at $1.2115 after Thursday's gains, when the European Central Bank announced a new round of stimulus in line with market expectations. EU leaders also reached a compromise over a pandemic aid package.

The euro has soared 15pc from three-year lows at the height of the March panic.

It has added nearly 2pc in two weeks since finally breaking $1.20 after multiple attempts.