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Pound surges on customs union report; dollar hovers at 2018 highs

Barbara Kollmeyer

Philly Fed, leading indicators data on deck


The British pound climbed against the dollar Thursday after a report the U.K. government plans to stay in the customs union beyond 2021, while the greenback slightly ease against major rivals but still hovered at highs for 2018.

Don’t miss:Geopolitical flare-ups give haven currencies a renewed boost

What are currencies doing?

The ICE U.S. Dollar Index (IFUS:DX-Y.NYB) was down 0.2% at 93.191, holding around its highest levels of the year, but off Wednesday’s print of 93.391. The index has been on an almost relentless gallop higher since mid-April, even though it’s had a few stumbles recently.

The dollar’s gain has come in part on the back of rising Treasury yields. The 10-year U.S. Treasury yield (XTUP:TMUBMUSD10Y=X) remained elevated at 3.10%, at another nearly seven-year high.

A broader measure of the greenback, tracking 16 rival monetary units, the WSJ Dollar Index (CALCULATED:BUXX) slipped 0.2% to 86.73.

Check out:Why it may be downhill from here for the U.S. dollar

A stand-out gainer was the British pound (GBPUSD), which surged to $1.3547 from $1.3490 late Wednesday in New York. Against the euro (GBPEUR) the pound jumped to €1.1459 from €1.1426 late Wednesday.

The euro (EURUSD) rose to $1.1825 versus $1.1807 late Wednesday, roughly its lowest point since mid-December. The euro also remained weak against the safe-haven Swiss franc (EURCHF) and Japanese yen (EURJPY) , at a five-week low of around 1.1823 francs and a six-day low at ¥130.38, respectively.

Against the Japanese yen (USDJPY)(JPY), the dollar was little changed, buying ¥110.29, from ¥110.39 late Wednesday. The Swiss franc dropped back below parity against the greenback, which bought 0.9998 Swiss franc (USDCHF)(CHF) from 1.0012 late Wednesday.

Don’t miss:Turkish lira hits historic low as Erdogan eyes control of country’s central bank

What is driving the market?

The pound soared following a report that the U.K. government plans to tell Brussels it plans to stay in the European Union’s customs union beyond 2021 in an effort to avoid a hard border with Ireland. The report, in the Daily Telegraph, said Prime Minister Theresa May’s Brexit subcommittee has agreed on Britain staying in the union on a temporary basis, if the technology needed to keep the borders working after Brexit aren’t up and running.

Pursuit of a customs union would offer stability for U.K.-based businesses, which should be supportive for the pound. May had balked at the idea of a customs-union option because it would get in the way of the U.K. trying to negotiate an international trade deal.

Meanwhile, investors kept a close eye on geopolitical issues. U.S. officials said they planned to go ahead with a summit set for June 12 with North Korea’s leader in Singapore, brushing aside comments by a senior North Korean official this week that cast doubt that the historic meeting will take place.

Pyongyang, in a lengthy statement on Wednesday, said it wasn’t interested in a meeting that would focus purely on denuclearization, as it also took issue with comparisons of its own nuclear-weapons state to that of Libya’s.

Euro investors kept a close eye on Italy, after reports surfaced over a draft proposal from Italy’s two main populist parties to radically change the country’s relationship with the rest of Europe. The news took a bite out of Italian stocks and bonds on Wednesday.

Read:Italian bonds show euro ‘exit’ fears still rumble below the surface

What are strategists saying?

“With the [euro-dollar pair] back above 1.1800, we’re at a make or break point for judging near term trader sentiment. Over the next 48 hours will be telling, as the bulls and bears jostled for position but provided the EURUSD can finish the week below 1.1850, that would suggest the bullish USD story remains intact. But a close below 1.1775 would be even more convincing,” said Stephen Innes, senior trader with OANDA, in a note to clients.

What else is in focus?

Updates for weekly jobless claims and the Philly Fed index for May are both due at 8:30 a.m. Eastern Time, followed by leading indicators for April at 10 a.m. Eastern.

Minneapolis Fed President Neel Kashkari will take part in a moderated discussion at 10:45 a.m. Eastern

Check out:MarketWatch’s Economic Calendar

In other assets, U.S. stocks closed slightly higher, with all three key indexes in the green, despite brewing geopolitical risks.

Barbara Kollmeyer is an editor for MarketWatch in Madrid. Follow her on Twitter @bkollmeyer.

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