(New throughout)
By Kate Duguid
NEW YORK, Dec 17 (Reuters) - The U.S. dollar rose modestly
on Tuesday, lifted by a dramatic slide in the pound after
British Prime Minister Boris Johnson put a no-deal exit from the
European Union back on the table.
Britain on Tuesday set a hard deadline of December 2020 to
reach a new trade deal with the EU, trying to pressure Brussels
to move more quickly to seal an accord. Johnson will use his
control of parliament to outlaw any extension of the Brexit
transition period beyond 2020. It was his boldest move since
winning a large majority in Thursday's election, and it spooked
financial markets. The pound GBP= was 1.53% lower in North American trade at
$1.312 and was down 2.89% from Friday when it hit its highest
since May 2018 following Johnson's victory.
"Sterling-negative Brexit uncertainty returned to the
forefront," said Joe Manimbo, senior market analyst at Western
Union Business Solutions.
The move was also driven by investors unwinding pre-election
positions in sterling, said Mazen Issa, senior foreign exchange
strategist at TD Securities.
"There was a lot of optimism being built into sterling going
into the election as the polls continued to show ... that there
would be a Conservative majority," said Issa.
"But our concern going into the election was that a good
chunk of that optimism was already priced in. So, once you did
have a realization of that outcome, it was an opportune time for
those that rode sterling on the way up to wind down some of
those positions."
The euro rose against the pound EURGBP= , last up 1.64% to
trade at 0.849 pence, its strength bolstering it against the
U.S. dollar as well EUR= .
"The move appears to be the knee-jerk variety for the euro
as Brexit uncertainty would only complicate Europe's already
challenging economic backdrop. A better test of euro sentiment
arrives Wednesday with the final reading of euro zone inflation
for November, which is forecast to go unrevised at a low 1%,
compared to the ECB's near 2% bullseye," said Manimbo.
The dollar index .DXY was slightly higher, up 0.20% at
97.214, driven by the fall in the pound as well as a fall in the
Australian dollar AUD= .
The Aussie dropped on Tuesday after Australia's central bank
opened the door to another cut in interest rates as early as
February. The trade-linked currency also weakened as euphoria
from the U.S.-China trade agreement faded. It was last down
0.52% at 0.685 U.S. dollar to the Aussie.