FOREX-New coronavirus strain hits pound as investors flee to dollar

(Adds analyst comment, background)
* Pound drops close to 2% as virus disrupts freight
* Brexit talks deadlocked
* New coronavirus strain overshadows U.S. stimulus deal
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Julien Ponthus
LONDON, Dec 21 (Reuters) - The British pound and the euro
fell on Monday as investors sought refuge in the dollar, after a
fast-spreading new coronavirus strain shut down much of the
United Kingdom and disrupted international freight.
Sterling GBP=D3 fell as much as 2.5% against the dollar in
morning trading with the yield on two-year British government
bonds falling to a record low as Prime Minister Boris Johnson
sought an emergency response to the crisis.
European stock markets fell after most of Europe cut off
transport with the UK, sowing chaos for families and companies
just days before Britain exits the European Union.
"The British horror stories of a shortage of goods after a
hard Brexit are taking on a whole new drive - for a completely
different reason," said Commerzbank strategist Ulrich
Leuchtmann.
Adding to the pressure were growing fears the UK could
crash out of its transition period out of the EU on Jan. 1.
Britain said the EU should shift position to open the way to
a post-Brexit trade deal, but there was no sign a breakthrough,
notably on fishing rights.
"The EU offer over the weekend was a very generous one, and
countries like France, the Netherlands, Denmark, Belgium, and
Ireland are very unlikely to make a further offer," Ireland's
Foreign Minister Simon Coveney told RTE Radio.
At 1202 GMT, the pound GBP=D3 was down 1.91% to $1.3270
and losing ground against the euro, down 1.23% to 91.66 pence.
The euro was also falling against the dollar, down 0.65% at
$1.2175.
But unlike the pound, which faces structural challenges when
it leaves - deal or no deal- the EU, the euro's strength isn't
expected to suffer structurally, said Holger Schmieding, chief
economist at Berenberg.
"It's a temporary setback in a longer trend", he said,
concerning the euro's fall on Monday. He expects the currency to
eventually resume its rise towards $1.25.
The pandemic stress in Europe overshadowed a weekend deal
among U.S. congressional leaders for a $900 billion coronavirus
aid package. The dollar climbed against major peers on Monday, with
investors seeking its relative safety as many countries
tightened COVID-19 lockdowns.
The dollar's rebound comes after it sank to
two-and-a-half-year lows last week, driven by optimism that
vaccines would help revive global growth.
The dollar index gained 0.46% to 90.530, after touching
89.723 on Thursday for the first time since April 2018.
The riskier Antipodean currencies weakened at the start of
the holiday-shortened trading week as investors rushed for haven
assets.
The Aussie dollar AUD=D3 dropped 1.52% to 75.09 U.S.
cents.
The U.S. dollar gained 0.37% to 103.68 yen JPY= , another
safe haven.