Dollar index continues higher
The British pound slumped to an almost one-week low on Tuesday, driven lower by concerns over the U.K.'s Brexit talks hitting another wall, with just 10 days to go to a key meeting between European leaders.
The dollar was mixed against other major currencies, a day after rallying on progress in Washington on passing U.S. tax reforms.
What are currencies doing?
The pound fell to $1.3392, down from $1.3478 late Monday in New York. It was trading at its lowest level since Nov. 29, according to FactSet data.
The ICE Dollar Index climbed 0.1% to 93.247, boosted by the sharp slump in sterling.
The euro dropped to $1.1844, compared with $1.1865 on Monday.
The yen fell against the dollar, with the greenback buying Yen112.52, up from Yen112.41 on Monday.
What's driving the markets?
The pound was slammed by the latest developments in the Brexit talks between London and Brussels.
On Monday, British Prime Minister Theresa May and European Commission President Jean-Claude Juncker said they had failed to reach a deal (http://www.marketwatch.com/story/british-pound-volatile-after-reports-of-no-brexit-deal-monday-2017-12-04) to clear the way to the second stage of negotiations on the U.K.'s withdrawal from the European Union.
Three issues need to be resolved before discussions on trade and a possible transition period can begin: EU citizens' rights after Brexit; the exit bill; and the Irish border. The first two have more or less been agreed, according to media reports, leaving the issue of the Irish border as a sticking point.
Arlene Foster, the leader of Northern Ireland's Democratic Unionist Party, scuttled May's proposal for the Irish border, media reports said. May had suggested a special arrangement in which Northern Ireland remains in the EU's customs union and single market, to ease trade with Ireland and avoid a hard border on the island.
But Foster said the DUP -- which is propping up May's Conservative government in parliament -- would not "accept any form of regulatory divergence" from the rest of the U.K., leaving the Brexit talks in a deadlock. That sent the pound into a downward spin that continued on Tuesday morning.
EU leaders meet for a summit on Dec. 14 and 15 to discuss whether there has been "sufficient progress" on the three key issues to move talks along to phase two.
The dollar continued its drive higher that was sparked on Saturday, when the Senate's version of the Republican-sponsored tax bill won passage (http://www.marketwatch.com/story/senate-passes-tax-bill-advancing-top-republican-priority-2017-12-02).
What are strategists saying?
"The pound is looking a bit queasy after its latest ride on the Brexit roller coaster, with sterling pulling back as the DUP forced Theresa May to dump her latest attempts at a deal with the EU," said Connor Campbell, financial analyst at Spreadex, ina note.
"The Tories are really taking a sticky tape and cardboard approach to government, patching over problems -- i.e. bringing the DUP in to prop-up their parliamentary majority -- with seemingly little-to-no foresight into what issues such solutions might cause in the future. It should come as no surprise that, like so many other things in the past few months, the DUP deal has come to bite May in the behind," he added.
(END) Dow Jones Newswires
December 05, 2017 05:12 ET (10:12 GMT)