Dollar headed for worst week in a month; sterling hit after May’s ‘no-deal’ comments

The U.S. dollar strengthened in Friday trading but still looked at its worst weekly performance in a month, while the British pound was pushed sharply lower after Prime Minister Theresa May spoke about the possibility of a “no-deal” Brexit.

The ICE U.S. Dollar Index DXY, +0.37%  was 0.4% stronger at 94.238 on Friday, but still headed for a 0.7% weekly decline, its worst in a month. Shorter-dated U.S. Treasury yields were on the rise on Friday, with the 2-year yield TMUBMUSD02Y, +0.02%  adding rising to 2.813% and the 10-year yield TMUBMUSD10Y, +0.25%  holding above 3%, which lent some support to the greenback.

On the Brexit front, European Union leaders rejected the U.K.’s post-Brexit proposal, adding pressure for Prime Minister Theresa May, whose Conservative Party is holding its annual conference next week.

May then said in a speech that the U.K. must and will continue to prepare for the possibility of a “no-deal” Brexit in which the U.K. leaves the European Union without an agreement governing its future relationship in place.

The next Brexit summit is scheduled for November, but this week’s talks in Salzburg, Austria, seems to have soured the mood amid both politicians and investors.

The British pound GBPUSD, -1.5375%  was thus unable to hold on to its gains from earlier in the week when hopes for a Brexit resolution had been high, and sharply dropped to its lowest since last week. Sterling last fetched $1.3067, down from $1.3268.

Elsewhere in Europe, Italy’s governing coalition is under pressure as the leader of the 5 Star Movement has threatened to leave over public spending that would widen the deficit. 5 Star leader Luigi di Maio and Northern League leader Matteo Salvini have clashed with Finance Minister Giovanni Tria over Italy’s budget plans. Investors are awaiting Italy’s budget proposal, which some worry won’t be in-line with the EU requirements and could lead to a spat between Rome and Brussels.

The euro EURUSD, -0.3651%  was modestly lower at $1.1746, compared with $1.1779 late Thursday in New York.

In other major currencies, the Canadian dollar USDCAD, +0.0620%  briefly dipped versus its U.S. rival, following comments from White House economic advisor Kevin Hassett that the U.S. was “very, very close” to going ahead with a trade deal with Mexico alone and not Canada, according to a Reuters report. The three countries have been renegotiating the North American Free Trade Agreement since August last year.

The greenback last bought C$1.2921, down from its day best of C$1.2945.

Meanwhile, the buck bought 18.8753 Mexican pesos USDMXN, +0.0807%  , up from 18.8275 late Thursday.

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