- Dollar index retreats from 16-month high
- Sterling up on Brexit deal hopes, BoE hints at future rate rises
(New throughout, updates rates, comments to U.S. market open; new byline, changes dateline; previous LONDON)
The dollar retreated across the board on Thursday and sterling rose the most in nine months on reports that London is close to sealing a financial services deal with Brussels.
Currencies hit hard by recent dollar buying soared as safe-haven demand for the greenback receded.
A British official said London was close to agreeing on a deal giving UK-based financial services firms basic access to European Union markets. The British government and EU officials later played down the chance of an imminent deal.
The BoE kept interest rates on hold on Thursday but kept its options open and hinted at slightly faster rate rises if Brexit goes smoothly.
BoE Governor Mark Carney said a no deal, no transition Brexit is not the most likely scenario.
"For Carney to say that a no-deal situation is 'not the most likely scenario' gives the pound a reprieve," said Juan Perez, senior currency trader with Tempus, Inc. in Washington.
Sterling was 1.46 percent higher on the day. The euro was up 0.79 percent.
"I think after six weeks of taking a beatdown over Italy and their politics, now the focus is on us, a country with some issues lately going into a particularly important mid-term election," said Perez.
More broadly, the dollar index .DXY , a gauge of its value versus six major peers, fell 0.76 percent to 96.392, a six-day low. The index hit a 16-month high on Wednesday.
"The dollar is certainly under pressure across the board and against G7 currencies in particular," said Dean Popplewell, vice president of market analysis at OANDA in Toronto.
"It's been a good move by the U.S. dollar over the past month or so and I would think there was a lot of squaring up and rebalancing of portfolios over the last 36 hours," he said.
The index rose 2 percent for the month of October, its best monthly performance since May.
"I believe some individuals who have been long the dollar for quite some time want to take some profit off the table ahead of nonfarm payrolls," Popplewell said, referring to October's U.S. employment report, scheduled for release on Friday.
Hopes that China would ramp up fiscal stimulus boosted the Australian dollar AUD= , seen as a barometer of investor sentiment. The Aussie was up 1.74 percent, also helped by data showing a strong rise in Australia's trade surplus.
The New Zealand dollar NZD= , which slipped 1.5 percent in October, started November on a firm footing and was up 1.93 percent. The Canadian dollar strengthened against its U.S. counterpart on Thursday.
China's yuan CNY=CFXS edged off a 10-year low on Thursday to end at 6.9496 per dollar, its highest onshore close in nearly a week.
U.S. President Donald Trump in a tweet on Thursday said he had a "very good" talk with Chinese President Xi Jinping on trade and North Korea and that the two planned to meet at the upcoming G-20 summit.
The Mexican peso gained more than 1 percent against the greenback on Thursday, recovering from the last session's losses that were brought on by a Fitch warning that it may downgrade the country's debt ratings on concerns about the incoming government's policies.
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