Euro, sterling spike against US dollar as Brexit plan gains cabinet approval

The dollar weakened on Thursday against the pound and euro, which rose after Britain’s prime minister won cabinet approval for her draft Brexit plan, but gains were capped by concerns over whether that plan will win parliamentary approval.

Prime Minister Theresa May won the backing of her senior ministers for a European Union divorce deal on Wednesday, pushing the euro and sterling up 0.8 percent and 1.2 percent against the dollar, respectively, from their intraday lows hit on Monday.

The draft divorce deal with the European Union struck on Tuesday would allow the United Kingdom to leave the EU with a deal that avoids a chaotic “hard Brexit” departure. But EU chief negotiator Michel Barnier cautioned that the road to ensuring a smooth UK exit was still long and potentially difficult.

Despite their outperformance over the dollar on Thursday, analysts still see firm support for the safe haven greenback amid broader concerns about Brexit and global trade tensions.

Sterling gained 0.06 percent versus the dollar, changing hands at $1.3002.

“Getting the draft approved by the parliament will be extremely challenging and that’s why we are seeing sterling gains capped at 1.3,” said Ray Attrill, head of currency strategy at National Australia Bank.

He said the dollar’s fundamentals remain strong, backed by a robust US economy and rising wage pressures, which will keep the Federal Reserve on track for further rate rises.

However, further gains will most likely be muted as traders are unwilling to place bullish bets after Italy re-submitted its draft 2019 budget to the European Commission.

It had the same growth and deficit assumptions as a draft rejected for breaking European Union rules, stepping up its showdown with the EU over its fiscal policy.