FOREX-Dollar downbeat as Brexit optimism lifts pound and euro

* Sterling touches 5-1/2 month high on Brexit optimism
* Dollar index on course for worst month since Jan 2018
* Yen stays weak as rate cut talk builds ahead of BOJ
meeting
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Marc Jones
LONDON, Oct 21 (Reuters) - The dollar was crawling towards
its worst month since January 2018 on Monday as intermittent
waves of Brexit optimism pushed the pound to a 5-1/2 month high
and kept the euro's bumper October intact.
Despite the failure of Britain's "super-Saturday" to live up
to its billing when UK lawmakers delayed a vote on a reworked
Brexit deal, there seemed to be tentative hopes that it would
eventually be passed. Asia had dragged the pound 0.5% lower but it rebounded in
Europe and briefly broke above $1.30 GBP=D3 for the first time
in 5-1/2 months as the flow of headlines resumed.
A lawmaker from the Northern Irish Democratic Unionist Party
(DUP), whose votes could be vital to the deal passing, said it
would not support a possible opposition party amendment to put
the UK in a customs union with the EU.
Some interpreted that as suggesting it could support the
deal, although there were plenty of other hurdles to clear,
including whether the British Parliament's speaker would even
allow another vote at this stage.
"I think markets are really trying to feel their way through
this," said Ned Rumpeltin, TD Securities' European Head of
Currency Strategy. "But what is clear is you don't want to be
caught short the pound at this point."
The political manoeuvring puts the timing of the whole
process in question yet again, even though markets seem assured
that it significantly reduces a 'no deal' Brexit, considered by
many to be the worst-case scenario for the UK economy.
Goldman Sachs said it sees the chance of a no deal Brexit
reduced to just 5%, from 10% previously. Elsewhere, currency moves were limited, though the last few
weeks has seen some sizeable shifts taking place.
The dollar is down 2.5% this month against a basket of top
currencies which, if it stays that way would be its worst month
since January last year. .DXY
It hovered at $1.1157 per euro on Monday but managed to claw
up to 108.48 JPY= against the safe-haven Japanese yen. The yen
has been weak too. Last week it hit a 2-1/2-month low.
The Bank of Japan meets next week and its Governor Haruhiko
Kuroda told Reuters at the IMF meetings that it could
"certainly" cut rates again if needed.
"If we need further easing of monetary conditions, we would
certainly reduce short- to medium-term interest rates. But we
don't want to reduce super-long interest rates," Kuroda said on
Saturday. FOCUS
There is plenty of central bank action in store this week
too. Thursday will be Mario Draghi's last meeting in charge at
the European Central Bank and comes amid divergence over its
recent decision to restart bond buying.
China's yuan firmed on Monday after its central bank fixed
the daily midpoint at its strongest in five weeks, and a comment
from the central bank chief that the exchange rate was at the
"appropriate level" reinforced market sentiment.
Prior to market opening, the People's Bank of China (PBOC)
set the midpoint rate CNY=PBOC at 7.0680 per dollar. It was 10
pips firmer than the previous fix of 7.0690, and the strongest
since Sept.16.
In a statement posted on the International Monetary Fund
website on Saturday, PBOC Governor Yi Gang said the yuan is at
"an appropriate level" based on economic and market
fundamentals. "Depreciation since the beginning of August has been driven
and determined by market forces and reflects shifts in market
dynamics and volatilities in global foreign exchange markets,
amid recent global economic and financial developments and
escalating trade tensions," Yi said.

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Sterling falls https://tmsnrt.rs/35RTMtl
Sterling shorts trimmed https://tmsnrt.rs/2W0D9ae
Dollar positioning and dollar index https://tmsnrt.rs/31xSQqH
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