Dollar lifted by sterling’s fall on Brexit deal defeat

The U.S. dollar benefited Friday from sterling’s slide after parliament for the third time rejected Prime Minister Theresa May’s proposed deal to pull Britain out of the European Union.

With May losing again – albeit by a smaller margin than the previous two votes – sterling is set to remain under pressure on fears no Brexit deal will be reached before the April 12 deadline.

Moves in the pound were less dramatic on Friday than those following May’s previous parliamentary defeats. Trading of the pound has been scaled back because it has become so difficult to predict amid the constant and sometimes arcane political developments, traders said.

The currency remained well above lows hit in December, in part because “markets have begun to price in a long delay and that’s risk and sterling positive,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets.

The pound fell as much as half a percent to the day’s low of $1.2976, briefly piercing a key market level of the 200-day moving average at $1.2979.

Sterling’s move led the dollar index higher, last up 0.07 percent to 97.274, helping it recover from an earlier drop on the weaker-than-expected report of U.S. inflation data, which added to the conviction that the country’s economy is losing momentum.

U.S. consumer spending barely rose in January and income increased modestly in February. The report from the Commerce Department also showed price pressures muted in January, with a measure of overall inflation posting its smallest annual increase in nearly 2-1/2 years. Consumer spending accounts for more than two-thirds of American economic activity.

With growth slower and inflation benign, Friday’s data bolstered the Fed’s case for ending its three-year monetary tightening campaign.

“It was a soft number,” said Anderson. “It is a relief that there’s no reason for the Fed to have to raise rates.”

The euro on Friday was headed for its worst month since October, weighed down by fears about economic growth and cautious signals from the European Central Bank. Policymakers cut growth forecasts for the euro zone economy earlier this month and launched a new round of cheap loans to its banks.

The euro was a tad lower at $1.122, down 1.43 percent for the month.

Source: Reuters (Reporting by Kate Duguid in New York and Tom Finn in London; Editing by Steve Orlofsky and James Dalgleish)