Dollar Down, Pound Up Over Great Brexit Expectations

© Reuters.

By Gina Lee

Investing.com – The dollar was down on Thursday morning in Asia, with investors retreating from the safe-haven greenback and turning to the pound over expectations of an imminent Brexit deal that could help the U.K. avoid a turbulent economic rupture come Jan. 1.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched down 0.09% to 90.168 by 8:59 PM ET (1:59 AM GMT).

The index has lost more than 6% during 2020 over investor bets that the U.S. Federal Reserve will maintain an accommodative monetary policy and expectations of more fiscal stimulus in 2021 to aid economic recovery from COVID-19.

Some investors forecast that an expected further decline in the greenback will boost stock markets and emerging-market currencies.

“The fact that equity indices traded mostly in the green this morning reflects a consensus expectation that Trump will sign the budget into law, although he could wait until the eleventh hour,” Rabobank senior FX strategist Jane Foley said in a note.

“If this doesn’t happen the dollar could benefit from safe haven buying,” but longer term the dollar will weaken to $1.23 per euro over the course of next year, the note added.

The USD/JPY pair inched up 0.02% to 103.57.

The AUD/USD pair edged up 0.20% to 0.7587, while the NZD/USD pair inched down 0.01% to 0.7094.

The USD/CNY pair inched down 0.06% to 6.5360.

The GBP/USD pair gained 0.36% to 1.3540. The pound was up 0.2% earlier in the session after rising 0.9% during the previous session, ending three consecutive days of losses. The euro also strengthened 0.1% to $1.22025, adding to its 0.2% gain overnight.

A Brexit agreement will protect some $1 trillion in annual cross-channel trade between the U.K. and the European Union (EU) from tariffs and quotas. Although no official announcement of the deal has been issued by either side, with negotiations still “going through the details” and no final agreement confirmed yet, the agreement will reportedly be announced later in the day.

U.K. Prime Minister Boris Johnson is reportedly ready to reach a deal with the EU, and there were reports that a deal had already been reached.

Some investors were positive about the prospects for a deal, even as warnings that talks were still under way were issued.

“This time it really does appear that a deal will be struck just in time for Christmas,” Westpac macro strategist Tim Riddell said in a note.

However, the note was cautious about the pound’s prospects even if a deal does transpire.

“If a deal does transpire on Dec. 24, the pound is likely to make further gains” toward $1.40, “but potential for a more substantial move towards 1.4500 now seems unlikely given how positions exhaustion is so prevalent,” it added.

Brexit expectations helped to overshadow U.S. President Donald Trump’s demands to a COVID-19 aid bill, which he termed “a disgrace”, that was passed by both the House of Representatives and the Senate earlier in the week.

The bill needs to be signed by Trump in order to become law, and his reticence threatens a government shutdown after the Christmas holidays.