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FOREX-Euro, sterling rise on hopes for Brexit deal
Published at 10/10/2018 at 20:08

* Hopes for Brexit deal buoy euro, sterling

* Pound hits strongest level vs euro since June

* Worries about Italy's finances cap euro's gains

* Higher U.S. yields fail to boost greenback

* Graphic: World FX rates in 2018

(Updates market action, adds quote)

By Richard Leong

NEW YORK, Oct 10 (Reuters) - The euro and sterling rose on Wednesday, underpinned by optimism for a Brexit deal, while the dollar lost ground against a basket of currencies even as U.S. bond yields hovered at multiyear peaks.

The common currency's gains were limited by worries about the sustainability of Italy's public finances, though Italian Economy Minister Giovanni Tria reiterated on Wednesday that the government would do everything in its power to regain the confidence of financial markets.

"There is more optimism that they will find some agreement between Britain and (the) European Union before Brexit," said Steve Englander, global head of G10 FX research at Standard Chartered Bank in New York.

This week, Brexit negotiators have hinted at progress toward terms for Britain to leave the economic bloc in March, which gave investors hope for an orderly departure. Still, caution persists due to scant details.

On Wednesday, EU's Brexit negotiator, Michel Barnier, said the two parties have agreed on much of the withdrawal agreement ahead of a summit of all the bloc's 28 national leaders next week.

The pound reached a two-week high at $1.3216 Wednesday and held a gain of 0.45 percent on the day. It hit its strongest level against the euro since June 15 at 87.23 pence.

The euro rose 0.3 percent to $1.15270 and held steady at 129.750 yen.

Some traders remain skeptical about a final Brexit deal.

"We see a lot of volatility, so the good news may be a temporary thing because the EU has been quick to reject most proposals even if it has the backing of Labour," said Juan Perez, senior currency trader with Tempus, Inc. in Washington.

Perez was referring to the U.K. Labour Party whose spokesman on Wednesday downplayed a news report that some party members would back a Brexit deal that Prime Minister Theresa May supports.

The bounce in the two currencies offset the effects of an increase in U.S. Treasury yields, putting pressure on the dollar.

Benchmark 10-year yields retreated from a seven-year high of 3.261 percent set on Tuesday, even as investors and dealers pared their bond holdings to make space for $36 billion 3-year and $23 billion 10-year note supply sold on Wednesday.

U.S. yields have increased on rising government debt supply and worries about higher inflation, which may push the Federal Reserve to raise short-term rates more quickly.

The ICE dollar index , which tracks the greenback against six major currencies, fell 0.2 percent on the day to 95.480. It hit a seven-week high on Tuesday at 96.155. ========================================================

Currency bid prices at 2:43PM (1843 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar EUR= $1.1526 $1.1489 +0.32% -3.91% +1.1545 +1.1480

Dollar/Yen JPY= 112.5500 112.9400 -0.35% -0.11% +113.2800 +112.5500

Euro/Yen EURJPY= 129.73 129.78 -0.04% -4.03% +130.4900 +129.7500

Dollar/Swiss CHF= 0.9916 0.9917 -0.01% +1.78% +0.9933 +0.9897

Sterling/Dollar GBP= 1.3203 1.3142 +0.46% -2.29% +1.3216 +1.3136

Dollar/Canadian CAD= 1.3020 1.2945 +0.58% +3.52% +1.3026 +1.2926

Australian/Doll AUD= 0.7087 0.7102 -0.21% -9.15% +0.7130 +0.7088

ar

Euro/Swiss EURCHF= 1.1431 1.1396 +0.31% -2.20% +1.1444 +1.1391

Euro/Sterling EURGBP= 0.8728 0.8741 -0.15% -1.74% +0.8754 +0.8724

NZ Dollar/Dolar NZD= 0.6462 0.6472 -0.15% -8.81% +0.6496 +0.6455

Dollar/Norway NOK= 8.2118 8.2656 -0.65% +0.06% +8.2685 +8.1913

Euro/Norway EURNOK= 9.4665 9.5005 -0.36% -3.86% +9.5096 +9.4400

Dollar/Sweden SEK= 9.1151 9.1036 +0.43% +11.14% +9.1192 +9.0789

Euro/Sweden EURSEK= 10.5080 10.4628 +0.43% +6.80% +10.5140 +10.4365

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(Additional reporting by Tommy Wilkes in London Editing by Jonathan Oatis and Andrea Ricci)

((richard.leong@thomsonreuters.com; +1 646 223 6313; Reuters Messaging: richard.leong.thomsonreuters.com@thomsonreuters.net; Twitter @RichardLeong2))