The dollar edged up on Monday, bouncing back from a more than 1% loss against major currencies last week as investors shook off dovish statements from the Federal Reserve.
A slide in sterling on rising ‘Brexit’ fears also buoyed the dollar.
Monday’s move higher in the dollar added to Friday’s gains that followed a two-day selloff in the greenback. The rally was prompted by the Fed reducing its rate hike outlook for the year and statements from Chair Janet Yellen that made note of potential risks to the global economy.
“It looks to me like we have dissipated the dollar weakness from the Fed,” said Joseph Trevisani, chief market strategist at Worldwide Markets in Woodcliff Lake, New Jersey.
“It’s taken a few days to run out and markets seem to be reassessing on the downside as far as the euro and the other currencies go. I don’t think it’s moved yet, but the Fed dovishness has played out.”
The British pound sank more than half a percent on concerns that a split in the ruling Conservative Party is deepening ahead of June’s referendum on EU membership.
The dollar index (DXY), which measures the U.S. currency’s strength against a basket of its peers, rose 0.15% to 95.200 after falling for a third straight week.
Worries about Prime Minister David Cameron’s ability to keep his Conservative party together and keep Britain in the European Union jumped after Iain Duncan Smith, a leading voice for the UK to exit the EU, resigned from the cabinet late on Friday.
“Sterling does not normally react strongly to UK politics so this is probably due to Brexit,” said Richard Benson, head of portfolio investment at currency managers Millennium Global.
“The referendum is just making people focus on issues like this a lot more. It is down in response this morning.”
In a week shortened to four days by the Good Friday holiday and light on U.S. economic data, dealers said the main focus was likely to be guidance from individual Federal Reserve policymakers.