Dollar hit as euro, sterling rise on Brexit deal

NEW YORK (Reuters) - The U.S. dollar fell sharply against the euro and sterling on Thursday as European Union leaders unanimously backed a long-awaited Brexit deal to take Britain out of Europe on Oct. 31.

FILE PHOTO: U.S. dollar and Euro bank notes are photographed in Frankfurt, Germany, in this illustration picture taken May 7, 2017. REUTERS/Kai Pfaffenbach/Illustration

Britain clinched an eleventh-hour deal on its exit from the EU on Thursday, more than three years after Britons voted in a referendum to leave the bloc, but Prime Minister Boris Johnson still faces a knife-edge vote in parliament on Saturday to get it approved.

While uncertainty remains on whether the pact will be ratified by British lawmakers, news of the agreement was enough to boost the euro 0.46% against the dollar and 0.12% against the British pound. EUR=EURGBP=

“The fact that we have a deal means that we are further from a hard Brexit and all eyes will shift to this weekend’s vote,” Brad Bechtel, global head of FX at Jefferies, said in a note.

The development in the Brexit saga marks a welcome respite for the euro, which has dropped more than 3% this year. Investor sentiment towards the single currency has been hurt by a broad economic slowdown in Europe driven by the protracted U.S.-China trade dispute.

On Thursday, the German government said it lowered its 2020 forecast for economic growth to 1.0% from 1.5% previously, but added that Europe’s largest economy was not facing a crisis.

News of the deal sent sterling surging to a five-month high and within a whisker of $1.30 before retreating sharply as traders worried that Johnson might fail to get lawmakers to support the Brexit plan, plunging the country into another round of uncertainty.

Sterling was 0.34% higher at $1.2874 in a very choppy session.

The dollar has come under pressure this week, shedding about 0.7% against a basket of currencies. .DXY

The greenback, which fell on Wednesday after weak U.S. retail sales data supported the case for further interest rate cuts by the Federal Reserve, extended its weakness on Thursday.

Data showed U.S. homebuilding tumbled from a more than a 12-year high in September. Separately, data showed a deceleration in factory activity in the mid-Atlantic region in October.

The Norwegian crown weakened to an all-time low of 10.1800 against the euro EURNOK=D3. Some analysts blamed the crown's recent weakness on global trade jitters, while others said the speed and magnitude of the drop were hard to explain.

The Australian dollar AUD=D3 held near the day's highs, up 1.02% against the dollar after jobs data showed buoyant hiring, lowering chances of monetary easing in November.

Reporting by Saqib Iqbal Ahmed; Editing by Bernadette Baum and Sonya Hepinstall