US dollar rises as new virus strain hits pound, euro

London

THE British pound and the euro fell on Monday as investors sought refuge in the US dollar, after a fast-spreading new coronavirus strain shut down much of Britain and disrupted international freight.

Sterling fell as much as 2.5 per cent against the US dollar in morning trading, with the yield on two-year British government bonds falling to a record low as UK Prime Minister Boris Johnson sought an emergency response to the crisis.

European stock markets fell after most of Europe cut off transport with the United Kingdom, sowing chaos for families and companies just days before it exits the European Union.

"The British horror stories of a shortage of goods after a hard Brexit are taking on a whole new drive - for a completely different reason," said Commerzbank strategist Ulrich Leuchtmann.

Adding to the pressure were growing fears the UK could crash out of its transition period out of the EU on Jan 1. Britain said the EU should shift position to open the way to a post-Brexit trade deal, but there was no sign of a breakthrough, notably on fishing rights.

"The EU offer over the weekend was a very generous one, and countries like France, the Netherlands, Denmark, Belgium, and Ireland are very unlikely to make a further offer," Ireland's Foreign Minister Simon Coveney said.

At 8.02pm Monday, Singapore time, the pound was down 1.91 per cent to US$1.3270 and losing ground against the euro, down 1.23 per cent to 91.66 pence. The euro was also falling against the US dollar, down 0.65 per cent at US$1.2175.

The pandemic stress in Europe overshadowed a weekend deal among US congressional leaders for a US$900 billion coronavirus aid package. The US dollar climbed against major peers on Monday, with investors seeking its relative safety as many countries tightened Covid-19 lockdowns.

The US dollar's rebound comes after it sank to two-and-a-half-year lows last week, driven by optimism that vaccines would help revive global growth. The dollar index gained 0.46 per cent to 90.530, after touching 89.723 on Thursday for the first time since April 2018.

The riskier Antipodean currencies weakened at the start of the holiday-shortened trading week as investors rushed for haven assets. The Aussie dollar dropped 1.52 per cent to 75.09 US cents. The US dollar gained 0.37 per cent to 103.68 yen, another safe haven. REUTERS