Weak euro lifts dollar, pound zooms on talk of second Brexit vote
The U.S. dollar rose on Thursday against a euro dragged lower by soft economic data, while the pound took off on hopes of a second referendum on Britain’s membership in the European Union.
Against the euro, the dollar strengthened to $1.1387, its highest in nearly two weeks. Inflation data for the trade bloc showed price pressures receding further from the central bank’s target, complicating the situation for the European Central Bank which currently expects to raise interest rates later this year.
The single currency has fallen 0.80 percent against the dollar since Tuesday morning, when Germany reported its economy grew by 1.5 percent in 2018, the weakest rate of expansion in five years.
“The data that has been coming out of Europe this week has certainly been on the softer side and suggests that from an economic standpoint they are technically in a recession,” said Dean Popplewell, chief currency strategist at Oanda.
The euro’s weakness comes at a time when the dollar itself has struggled to gain momentum. On Jan. 10, the dollar almost fell below its 200-day moving average when the index touched a three-month low of 95.029. Since then it has rebounded but is still down about 0.07 percent so far this month.
The British pound rose to a two-month high against the euro , extending recent gains on growing expectations Britain can avoid a no-deal withdrawal from the European Union. Talk of a second referendum vote in the UK sparked a rally in afternoon trade which further lifted the currency.
Prime Minister Theresa May has been meeting lawmakers from all parties in an attempt to find a way out of an impasse over how Britain should leave the EU, after May’s own plan was resoundingly rejected by parliament on Tuesday. While she has repeatedly rejected a second referendum, a vocal campaign in favor of holding a new vote has the support of some lawmakers.
Official government guidance shared with lawmakers on Wednesday showed that a second referendum would take more than a year to organize.
The pound also firmed toward a two-month high against the dollar. It was trading 0.73 percent up at $1.275, its highest since Nov. 15.
Investors expected the pound to trade within a relatively tight range for the remainder of the week. However, “comments tend to come fast and furious through the London papers on the weekend which normally sets up to a surprise open in sterling,” said Popplewell.