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Sterling and euro rise on Brexit hopes

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On Wednesday, the euro and sterling climbed higher, as investor confidence rose on news Britain had struck a draft divorce deal with the EU after more than a year of talks. The surge in the euro and sterling led investors to take profits on the U.S. dollar, which retraced from a 16-month high.

The dollar index, a gauge of its value versus six major peers traded at 97.03 on Wednesday, down 0.28 percent. The index hit a 16-month high of 97.69 on Monday.

The British pound traded at $1.3006 on Wednesday, gaining 0.25 percent as traders reduced bearish bets after Britain and the European Union agreed a preliminary text that would allow the United Kingdom to leave the EU with a deal that avoids a chaotic “hard Brexit” departure.

The challenge for British Prime Minister Theresa May is now to sell this deal to the parliament, where hardline Brexit supporters accused her of surrendering to the EU. The British cabinet will meet at 1400 GMT on Wednesday to consider the draft withdrawal agreement.

Riding on the positive sentiment around a potential smooth and orderly Brexit deal, the euro gained 0.14 percent to trade at $1.1305 on Wednesday. The euro’s gain was limited by concerns about Italy’s budget proposals and downbeat German investor confidence data, traders said.

On Tuesday the euro hit a 6-1/2 month low versus sterling of 0.8653.