Hopes for Brexit deal lift euro, sterling

By Richard Leong

NEW YORK (Reuters) - The euro and sterling rose against the dollar on Monday after the European Union’s top negotiator said an agreement for Britain to leave the economic bloc might be reached in the coming weeks.

The pound in particular had been under pressure in recent weeks on anxiety that Britain would exit from the EU without any formal trading arrangement.

“Sterling bears have been caught off side. The euro is also getting a bump as people are jumping on a ‘risk-on’ sentiment,” said Dean Popplewell, vice president of market analysis at OANDA in Toronto.

EU chief negotiator Michel Barnier told a forum in Slovenia a Brexit deal was “realistic in six to eight weeks.”

Sterling GBP=D3 was up as much as 1 percent versus the dollar. It was last up 0.9 percent at $1.3033, Reuters data showed.

The euro EUR=EBS rose nearly 0.4 percent at $1.15965, while it touched a near one-month low against the pound, last down over 0.5 percent EURGBP=D4 at 88.98 pence.

Policy-makers at the Bank of England and European Central Bank are widely expected to leave their policy unchanged at their respective meetings on Thursday.

“It seems unreasonable to expect (Mario) Draghi to signal a course change” at the ECB, said Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman in New York. “It is an easy call: unanimous decision to hold after hiking rates last month,” Thin added.

(Graphic: The European Central Bank's QE program:
Reuters Graphic
Reuters Graphic
The more positive view on Brexit reduced safe-haven holdings of the dollar, whose decline was limited by an upbeat U.S. jobs report released on Friday and lingering worries about emerging market currencies, analysts said.

An index that tracks the dollar against the euro, sterling, yen and three other currencies .DXY was down 0.24 percent at 95.140.

Speculators’ net long bets on the U.S. dollar fell to a five-week low, worth $20.60 billion in the week ended Sept. 4, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday.

(Graphic: USD positions:
Reuters Graphic
Reuters Graphic
An index for emerging market currencies .MIEM00000CUS fell 0.5 percent to near one-week lows. The Indian rupee INR= fell to a record low at 72.675 per dollar, while the Hong Kong dollar HKD=D3 hit the lower end of a trading band at 7.85 per U.S. dollar.

Meanwhile, the Swedish crown SEK=D3, which has been the worst performing currency among the majors, edged up 0.1 percent at 9.059 crown per dollar. Gains for the far right in Sunday's election were smaller than some polls had predicted - even though the country faces weeks of uncertainty as it tries to form a government.

Additional reporting by Saqib Iqbal Ahmed in New York; Saikat Chatterjee in London; Olof Swahnberg in Stockholm; Editing by Alistair Bell and Chizu Nomiyama