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Brexit turmoil spooks investors, boosts US dollar, yen

London

THE US dollar jumped and traders bought into the safe-haven yen on Thursday after Britain's Brexit deal with the European Union (EU) was plunged into uncertainty, spooking investors across currency markets.

The resignation of a series of British ministers in opposition to the newly-agreed Brexit withdrawal deal sent sterling plummeting more than one per cent. It also dragged the euro into negative territory as investors took fright at turmoil in one of the eurozone's biggest trading partners.

The US dollar index, which measures the buck against major currencies, firmed half a per cent to 97.268. The yen gained 0.2 per cent to 113.42 against the US dollar and was up 0.3 per cent versus the euro.

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Bond investors scrambled for safety, piling into German government debt. British Prime Minister Theresa May had said she won the backing of her senior ministers for an EU divorce deal on Wednesday but many in her government are unconvinced.

Brexit Secretary Dominic Raab's resignation leaves Mrs May battling for survival as well as trying to win over her Conservative Party to support the EU withdrawal deal.

The euro, after earlier trading 0.3 per cent higher, fell 0.2 per cent to US$1.1291. Sterling shed as much as 1.7 per cent versus the US dollar to below US$1.27 and 1.5 per cent versus the euro to 88.44 pence. The pound recovered slightly as Mrs May sought to sell the benefits of the deal in a speech to the British Parliament.

"May has survived resignations before but coming on the back of her final deal, this could be far more damaging if others walk as well," said Craig Erlam, an analyst at Oanda. "More worrying could be reports that enough letters may have been collected to trigger a leadership challenge. There's no guarantee this would be successful but you have to think that there is at least a belief that there's enough support."

Analysts said the US dollar's gains on the back of the sterling slump were contained after some cautious comments about the economic outlook from Federal Reserve chairman Jerome Powell overnight.

The Australian dollar jumped more than 0.8 per cent to US$0.7294 after upbeat jobs data. The New Zealand dollar also rose.

Both later gave up some of those gains as investors turned more cautious about taking on risk in currency markets following sterling's slide lower. REUTERS