US dollar gains against sterling on Brexit worries, US growth bets

[NEW YORK] The US dollar hit its highest level in two months against the sterling on Wednesday on concerns over next year's Brexit negotiations, while expectations of higher US economic growth also underpinned the greenback.

Sterling fell as much as 0.5 per cent to a session low of US$1.2201, its weakest since Oct 31. Britain faces uncertainty next year over Brexit negotiations. In October, Prime Minister Theresa May said she would trigger the process to leave the European Union by the end of March.

Expectations that US President-elect Donald Trump's incoming administration would boost US growth through fiscal stimulus also continued to bolster the US dollar.

Mr Trump plans to make an announcement related to the economy between 4pm and 5pm ET (2100 to 2200 GMT), incoming White House spokesman Sean Spicer told reporters on a conference call.

The US dollar index, which measures the greenback against a basket of six major rivals, has gained 4.7 per cent this year. All those gains have come after the Nov 8 US election.

The Federal Reserve's projections, released on Dec 14, of three rate hikes for 2017 from the two foreseen in September have also contributed to the US dollar's recent gains.

"This is just a continuation of the trend" of dollar strength, said Axel Merk, president and chief investment officer of Palo Alto, California-based Merk Investments. Mr Merk, who noted that trading volumes were thin with many traders on vacation, said the upcoming Brexit talks did not bode well for sterling.

The euro fell as much as 0.8 per cent against the US dollar to an eight-day low of US$1.0372. Against the Japanese currency, the US dollar was last down 0.15 per cent at 117.21 yen , slipping from an earlier six-day high of 117.81.

The US dollar index was last up 0.28 per cent at 103.310 after hitting a session high of 103.630 and flirting with a 14-year peak of 103.650 struck on Dec 20.

Some analysts said another source of euro weakness was the rise in the European Central Bank's estimates of how much additional capital will be needed to prop up Italian bank Monte dei Paschi di Siena.

"Our case is that there's probably a bit more room for (the dollar) to run," said Dominic Bunning, a strategist with HSBC in London.

The euro remained weak against the US dollar even though contracts to buy previously owned US homes fell in November to the lowest in nearly a year, according to National Association of Realtors data.

REUTERS