FOREX-Dollar hits 16-month high; Brexit fears knock sterling
* Dollar rises vs yen, franc, euro and Aussie
* Greenback strength follows fed hawkish guidance
* Sterling tumbles 1 pct on no-deal Brexit fears
* Euro down 0.8 pct with Italy budget standoff in focus
* Graphic: World FX rates in 2018 (Adds detail on Italy, updates prices)
By Tom Finn
LONDON, Nov 12 (Reuters) - The dollar rallied to a 16-monthhigh on Monday as investors positioned for a Federal Reserveinterest rate rise next month and concern about political risksin Europe put pressure on the euro and the pound.
The dollar fell last week on the belief that losses for U.S.President Donald Trump's Republican party in the midtermelections would make further fiscal stimulus measures unlikely.
But the greenback has mounted a significant rally since theFed kept interest rates steady on Thursday and reaffirmed itsmonetary tightening stance. The currency remains underpinned bythe robust U.S. economy.
Fears about a no-deal Brexit and a growing rift in Europeover Italy's budget have also aided the dollar.
"King dollar has staged a return," said Valentin Marinov,head of G10 FX strategy at Credit Agricole. "After the Fed [lastweek] investors are pretty happy to reload on long dollarpositions. The European currencies look most vulnerable."
Net long positions on the dollar versus G10 currencies lastweek rose to their highest levels since 2015 at $30.4 billion,according to CFTC data. The euro was knocked back by concerns about Rome's tusslewith the European Commission over its 2019 budget and weaknessin Italy's banking sector. The single currency slid 0.7 percentversus the dollar to its lowest since June 2017 at $1.124.
The European Union, which has given Rome until Tuesday topresent a revised version of the budget, also cut its forecastsfor Italian growth last week. Adding to worries about Italy, the shares of one of thecountry's banks, Carige, were suspended on Monday after reportsof a capital hole. The malaise in Europe has been good news for dollar bulls,with the Sino-U.S. trade tensions and weak China data alsofeeding safe-haven flows to the greenback.
"A strong U.S. economy versus a weakening eurozone economywill trigger further euro-selling pressure. The dollar will besupported going into year end," said Bernd Berg, Global Macroand FX Strategist at Woodman Asset Management AG.
The British pound on Monday fell more than 1percent to $1.2827 as doubts grew over Prime Minister TheresaMay's ability to get the backing of the EU and her own party forany Brexit deal. With less than five months before Britain is due to leavethe EU on March 29, negotiations are still stuck over how toprevent a return to a hard border between British-ruled NorthernIreland and EU member Ireland.
Against the Japanese yen, the dollar gained 0.3percent and was last at 114.115, its weakest level since Oct. 4.The dollar has been preferred over the yen because of thediverging monetary policies of the Fed and the Bank of Japan,which is expected to keep retain its monetary policy ultra-loosefor some time.
The Australian dollar lost 0.4 percent on thegreenback to $0.7194.
(Additional reporting by Vatsal Srivastava in Singapore;Editing by Toby Chopra)
 |