Sterling rises against weaker dollar as UK-EU agree trade reset

By Lucy Raitano

(Reuters) -The pound rose against a weaker dollar and fell against the euro on Monday after Britain agreed a major trade and defence reset with the European Union, though FX market attention stayed on U.S. developments.

Britain agreed the most significant reset of ties with the European Union since Brexit on Monday, removing some trade barriers and collaborating on defence but also touching on sensitive issues including fishing rights.

The pound was last up 0.91% versus the dollar at $1.34015, having briefly touched its highest level since April 30. Meanwhile it fell 0.31% against the euro to 0.8421.

Neil Wilson, UK investor strategist at Saxo Markets, said the market seems to like the deal overall, but focus remains on the U.S. dollar.

"I feel like this is a little ripple to the main tidal wave of U.S. debt selloff and dollar-led moves - gilts are getting hammered and no amount of fish is going to fix that," he said.

The dollar fell against a range of currencies including the euro and the yen on Monday after a surprise downgrade of the U.S. government's credit rating while trade tensions also continue to weigh on the greenback.

Rising U.S. 10-year treasury yields - last up 10.5 bps to 4.54% on Monday - could have a potential knock-on effect for sterling via the gilt market, said Saxo's Wilson.

After upbeat GDP data last week boosted the pound, traders are now looking ahead to UK CPI due on Wednesday for a steer on the potential trajectory of the Bank of England (BoE). Traders are currently betting on a 25bps cut at the BoE's next meeting in June.

(Reporting by Lucy Raitano; Editing by David Evans)