FOREX-Sterling jumps, dollar falls on Brexit deal optimism

(New throughout)
By Kate Duguid
NEW YORK, Oct 15 (Reuters) - The British pound on Tuesday
jumped to its highest level since mid-May against the dollar
following a report that officials were close to a deal for
Britain to exit the European Union.
Bloomberg News reported that negotiators hoped an agreement
would be reached by midnight on Tuesday. But any discussion that
the two sides are close to agreeing on the text of a draft deal
is "premature," two EU officials told Reuters. Already higher on the day, the pound GBP= jumped above its
200-day moving average, a closely watched technical level, for
the first time since May. It was last up 1.35% to $1.278, having
earlier hit $1.280, a five-month high.
"The reaction from the markets shows they want to get this
deal over and they are ready to push the button at the slightest
sign of a deal," said Morten Lund, a senior FX strategist at
Nordea.
Against the euro EURGBP= , the pound was also at a
five-month high, last 1.34% stronger at 0.863 per euro. Against
a broad basket of its rivals .DXY , the dollar was down 0.15%
to 98.309.
The Brexit news reversed a dollar rally earlier in the day
as fading optimism over the latest China-U.S. trade truce
prompted traders to buy the greenback after a selloff last week.
The combination of some tepid U.S. data and hopes of a
breakthrough in a protracted trade conflict between Washington
and Beijing prompted funds to unwind some of their dollar long
bets recently, putting the U.S. currency under selling pressure.
"After the recent flushout of dollar long bets, currency
investors have reassessed the short-term outlook and have come
to the view that there is not going to be much of a movement on
the trade issue," said Stephen Gallo, European Head of FX
Strategy at BMO.
Reports of a "Phase 1" trade deal between the United States
and China last week had initially cheered markets but the dearth
of details around the agreement has since curbed this
enthusiasm, with oil prices extending declines and Chinese
stocks weaker.
Fading hopes over a trade deal also pulled the Chinese
currency lower. China's yuan CNH= slipped in offshore markets,
a day after reaching a one-month high. The offshore yuan traded
at 7.083 against the dollar, off Monday's high of 7.051.


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