October 23, 2018 / 1:08 AM / 10 months ago

FOREX-Dollar index near 2-week high on stronger safe haven bid

* Dollar index hovers near 2-week high

* Sterling under pressure as Brexit concerns loom

* Euro finds no bid despite fall in Italian 10-year bond yields

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

By Vatsal Srivastava

SINGAPORE, Oct 23 (Reuters) - The dollar gained against its major peers on Tuesday, reining as the preferred safe haven currency as uncertainity over Brexit negotiations and Italy’s free spending budget spooked investors away from the euro and sterling.

British Prime Minister Theresa May on Monday said most of the country’s deal to exit the EU has been agreed on but repeated her opposition to a EU proposal regarding the Irish border, according to excerpts from her statement to Parliament.

With just over five months until Britain is scheduled to exit the EU, talks have stalled over a disagreement on the so-called Northern Irish “backstop,” an insurance policy to ensure there will be no return to a hard border on the island of Ireland if a future trading relationship is not agreed upon in time.

“Risk-aversion was the story overnight along with U.S. dollar strength. Euro’s underperformance is also due to Brexit uncertainity,” said Sim Moh Siong, currency strategist at Bank of Singapore.

“There was no follow through in global equities from the huge China rally on Monday as cyclical stocks underperformed,” added Sim.

The sterling traded flat at $1.2965 on Tuesday, after losing 0.83 percent of its value on Monday, its steepest fall in percentage terms since Sept. 21. The pound has lost 2.2 percent versus the greenback in the last seven trading sessions.

Italy also dominated euro price action with the single currency failing to find relief despite the fall in Italian 10-year bond yields on Monday. The benchmark Italian 1-year yield declined by 3 percent on Monday, its steepest fall in percentage terms since Oct. 3.

Investors expect further political uncertainty in Europe over Italy’s spending plans. Moody’s, a rating agency, downgraded the Italian credit on Friday but surprisingly kept the outlook stable.

The euro changed hands at $1.1460 on Tuesday, trading marginally lower versus the greenback.

This risk-off sentiment may bode well for the dollar in the coming days. The greenback has also made gains against the Japanese yen.

The yen has weakened against the dollar in the four of the past five trading sessions. It traded at 112.71 to the dollar on Tuesday, slightly below its 8-day low of 112.88 hit on Monday.

“The strength in the dollar has overpowered the safe-have status of the yen in the last few sessions,” Margaret Yang, market analyst at CMC markets.

The dollar index, a gauge of its value versus six major peers, traded at 96.02 on Tuesday, gaining marginally. The next resistance for the index is at its recent peak of 96.15, hit on Oct. 9.

The Australian dollar lost 0.18 percent versus the greenback on Tuesday, changing hands at 0.7065. It lost 0.57 percent on Monday. (Reporting by Vatsal Srivastava; Editing by Sam Holmes)

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