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Abu Dhabi, UAETuesday 20 November 2018

Pound stuck in doldrums on Brexit as dollar strengthens

UK currency suffers amid fears of a "hard" divorce from the European Union

Sterling is weak while the greenback is being supported by US-China trade tensions. Reuters
Sterling is weak while the greenback is being supported by US-China trade tensions. Reuters

The pound remained weak on Tuesday after dropping to an 11-month low against the dollar overnight on worries over a "hard" Brexit from the European Union, while simmering US-China trade tensions helped support the greenback.

Comments from officials about a no-deal Brexit stoked fears Britain would crash out of the EU next year without securing a trade agreement.

Sterling sank as far as $1.2920 overnight, its lowest since early-September last year, before making up some losses. It last stood at $1.2944 at 8.50am UAE time.

The dollar index against a broad basket of currencies traded at 95.345 on Tuesday, not far from a more than one year high of 95.652 reached on July 19.

Some analysts see trade tensions supporting the US dollar as the nation’s economy is better placed to handle protectionism than emerging markets, and as tariffs may narrow the US trade deficit.

“There is still a lot of uncertainty on the tariffs. We don’t know exactly how much will be implemented and how bad it can get,” said Shinichiro Kadota, senior FX and rates strategist at Barclays in Tokyo.

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“If US economic growth starts to slow down because of tariffs or because past tax-cut effects are waning, then I think the economic performance could fade, which could also lead to fading dollar strength.”

The euro stayed fragile after dipping to a five-week low of $1.1530 overnight, as German industrial orders fell more than expected in June, posting their steepest monthly drop in well over a year. It last traded a touch higher at $1.1558.

The dollar edged down 0.1 percent to ¥111.30 after ticking up slightly overnight.

The Turkish lira firmed against the dollar after broadcaster CNN Turk, citing diplomatic sources, reported that a delegation of Turkish officials will head to Washington in two days to discuss an ongoing row between the two Nato allies.

The currency was trading at 5.263 against the dollar at 00.15 GMT on Tuesday.

It had plunged about 5.5 per cent to a record low of 5.425 overnight after the Trump administration announced late on Friday that it was reviewing Turkey’s duty-free access to US markets.