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Overnight, hopes of a global economic rebound and a fading
pandemic in 2021 saw investors taking bets on riskier currencies
linked to rising commodity prices such as the Australian and
Canadian dollars, both of which hit 2018 highs.
But the U.S. dollar made a comeback in early European trading as
the mood soured and Brexit worries added to the delays facing a
new U.S. fiscal stimulus.
At 1144 GMT, the pressure was off the dollar, which was back up
0.3% against a basket of major currencies, trading at 91.036 and
moving away from the two-and-a-half-year low of 90.471 it
reached a week ago.
"Overall it's a risk-off move", said Kit Juckes, a foreign
exchange strategist at Societe General. Given the dollar's
recent losses, he said, it wasn't surprising to see some
investors were unfolding some of their positions.
He added that the state of the post-Brexit trade talks was
weighing on the market. Britain is now more likely to leave the
European Union on Dec. 31 without a trade deal than with a deal,
an EU official quoted the head of the European Commission as
telling the bloc's 27 national leaders.
Sterling suffered heavy losses and was down about 0.8% at
$1.3185 before a weekend of brinkmanship. British and EU
negotiators have been told they have until the end of Sunday to
decide whether a trade deal is possible.
Options market moves show traders bracing for chaos, with
one-week implied volatility at a nine-month high and the premium
of sterling puts to calls near its highest since April as
investors pay for downside protection.
The euro was also retreating against the dollar, losing 0.23% at
$1.2115 after Thursday's gains, when the European Central Bank
announced a new round of stimulus in line with market
expectations. EU leaders also reached a compromise over a
pandemic aid package.
The euro has soared 15% from three-year lows at the height of
the March panic. It has added nearly 2% in two weeks since
finally breaking $1.20 after multiple attempts.
(Reporting by Julien Ponthus; Editing by Angus MacSwan)
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