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Wednesday, August 23, 2017

Sterling gives back gains made after May calls UK vote

An English ten Pound note is seen in an illustration taken March 16, 2016. /REUTERS
An English ten Pound note is seen in an illustration taken March 16, 2016. /REUTERS

The dollar index edged away from three-week lows on Wednesday, as a resurgent sterling gave back some of the gains it made after British Prime Minister Theresa May called an early general election ahead of Brexit negotiations.

The pound sailed to its highest in more than six months after May said the election would "secure the strong and stable leadership" position needed for talks with the European Union about terms for the looming exit.

The dollar index, which tracks the greenback against a basket of six rival currencies, edged up 0.1 percent to 99.633 , pulling away from its overnight low of 99.465, its deepest trough since March 28.

Sterling gave up 0.2 percent on the day to $1.2823 after rising as high as $1.2908 on Tuesday, its highest since early October, as investors scurried to cover short positions.

"May's decision to hold a vote gave sterling a lift higher," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

"In the background, we still have other issues such as North Korea, which could weigh on risk sentiment, as well as the French election," he said.

US Vice President Mike Pence said on Wednesday that Washington would work with its allies and China to put economic and diplomatic pressure on North Korea after its failed missile test over the weekend.

He added that America would defeat any attack with an "overwhelming response".

The dollar edged up 0.1 per cent to 108.58 yen, while the euro edged down slightly to $1.0719 after riding sterling's coat-tails to three-week highs overnight.

"Sterling's jump was a on-off event due to May's surprise election announcement, but the French election has been a factor for the euro for a while, and will continue to be one," said Kumiko Ishikawa, FX market analyst at Sony Financial Holdings in Tokyo.

French opinion polls show far-right leader Marine Le Pen and centrist Emmanuel Macron qualifying next Sunday for the May 7 run-off, but the gap with conservative Francois Fillon and far-leftist Jean-Luc Melenchon has been tightening.

Weak US economic data also pushed down US Treasury yields and weighed on the dollar.

US homebuilding fell in March, and manufacturing output dropped for the first time in seven months.

The yield on US benchmark 10-year Treasury notes stood at 2.180 percent in Asian trading, after falling as low as 2.165 per cent on Tuesday, its lowest since mid-November.

The Australian dollar slumped 0.4 per cent to $0.7528 , pressured by sterling's rise as well as a slide in iron ore prices.

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