The dollar has reached a 16-month high on Monday against a basket of currencies as investors built bets on a Federal Reserve interest rate increase next month and political risks in Europe which put pressurized the euro and the pound. Fears about a no-deal Brexit and a growing rift in Europe over Italy’s budget has also boosted the dollar.
The greenback rebounded from losses tied to the view that US elections last Tuesday, which produced a split control of Congress, would reduce the chances of more fiscal stimulus measures. The dollar’s bounce has been underpinned by the Fed’s signal that it could hike key lending rates further as US economic expansion remains on the track.
Rising global uncertainty and the widening US. yield differential with other economies provided support, but an elevated valuation continues to constrain further gains.
The futures market implied traders saw about a 76 % chance the US central bank would raise the rates for a 4th time in 2018 at its Dec 18-19 policy meeting.
Net-long positions on the dollar versus G10 currencies last week surged to their highest levels since 2015 at $30.4 billion. At 3:27 PM ET, the dollar index was up 0.66 % at 97.54.
It reached 97.578 earlier on Monday, which was the highest since June 2017. US trading was muted by the US Veterans Day holiday. While Wall Street and currency markets were open for business, the US bond market had been closed.
The sterling shed over 1 % at one point as the doubts grew over Prime Minister Theresa May’s power to get the backing of the EU and her own party for any Brexit deals.
With less than 5 months before Britain is due to leave the EU on Mar 29, negotiations are still stuck over how to prevent a return to a hard border between Northern Ireland under the British rule and EU member Ireland.
The pound was down 0.91 % at $1.2856 and the euro was lower marginally against the pound at .8736 pence.
The euro was knocked down by concerns about Rome’s tension with the European Commission over its 2019 budget and weakness in Italy’s banking sector. The single currency fell 0.84 % versus the dollar to 1.1239, its lowest since June 2017.