Dollar fell on Tuesday
The dollar dropped on Tuesday after an apparent breakthrough in the Brexit talks between the European Union and the UK encouraged the purchase of riskier currencies.
The yen was also lower as investor sentiment became positive after the news that British Prime Minister Theresa May provided legally binding assurances from the EU hours before the parliamentary vote on her Brexit withdrawal agreement.
As the future of the Brexit deal is still in balance, lawmakers were studying the assurances with lawyers prior to the move.
Sterling added more than three cents versus the dollar from its bottom on Monday, reaching a 22-month high against the euro.
“The positive risk mood is into a second day as optimism about U.S./Chinese trade, a lack of fresh news and Brexit optimism (for once) conspire to keep yen, Swissie, and dollar anchored,” said Kit Juckes, a strategist at Societe Generale.
The dollar index dropped 0.3% against a basket of currencies, to 96.838.
The Japanese yen, usually popular when investors turn nervous, also fell, losing 0.2% to 111.425 yen.
The euro rose 0.3% to $1.1282, rebounding more ground after dropping last week when the European Central Bank announced a delay to raising interest rates.
The improved mood, backed by renewed hopes for a US-China trade agreement and US retail sales data on Monday, supported the emerging markets currencies.
Sweden’s crown dropped after February’s inflation, which was slightly below expectations. Later, the crown recovered, settling at 10.57 crowns per euro, which is down 0.2% on the session.
The Norwegian crown boosted after a positive activity survey of central bank. On Monday, it firmed 0.8% against the single currency after strong inflation data fanned expectations of interest rate hikes.
But it was sterling that was the standout mover.
It rose 0.6% to $1.3232, having reached a high of $1.3290 overnight after dropping as low as $1.2945 on Monday.
Against the euro too, sterling performed well, adding 0.4% to 85.15 pence per euro after earlier reaching 84.755 pence.
The British parliament rejected May’s initial deal by a record 230 votes in January, and the sterling would likely be sensitive to any signs the prime minister could persuade enough lawmakers to change sides on Tuesday.
The scheduled UK departure from the EU is on March 29, and although the fears of no-deal Brexit have receded, investors still do not know how and when Britain will exit the trading bloc.
“Having lost the first vote by a margin of 230, approval of the Withdrawal Deal would be a huge surprise tonight and could send GBP/USD to $1.35. Elevated levels of short-term volatility suggest that is possible, though perhaps not likely,” ING analysts wrote to clients.