NEW YORK- The U.S. dollar climbed to a three-week peak on Tuesday, helped by losses in sterling on renewed worries about Brexit as well as investors' aversion to risk amid a sell-off on Wall Street.
Sterling fell to a four-week low against the dollar and was last down 0.9% at $1.3045 .
Britain had gone into Tuesday's fresh round of Brexit trade talks warning it was ramping up no-deal preparations. A sense of crisis took hold as the Financial Times reported the head of Britain's legal department had quit over suggestions Boris Johnson wanted to override parts of the existing divorce deal.
Aside from Brexit concerns, currency investors flocked to the safe-haven dollar as U.S. stocks got hammered.
"We're seeing a sterling-driven market that has seen the dollar rally. Markets are re-pricing a no-Brexit deal," said Erik Bregar, head of FX strategy, at Exchange Bank of Canada in Toronto.
"There is also some risk-off moves in the stock market, which is a mild positive for the dollar," he added.
In mid-morning trading, the dollar index rose 0.3% to 93.294 =USD , after earlier advancing to a three-week high of 93.483.
The greenback, however, struggled against the safe-haven yen, falling 0.3% to 105.97 JPY=EBS , weighed down by weakness in U.S. stocks.
The yen rose despite data showing Japan's economy shrank an annualised 28.1% in April-June, worse than the initial estimate of a 27.8% contraction, revised data from the Cabinet Office showed on Tuesday.
The euro, meanwhile, fell to a two-week low versus the dollar, and was last down 0.3% at $1.1785 ahead of the European Central Bank's post-summer meeting later in the week.
Most analysts don't expect a change in the central bank's policy but are looking to the message on its inflation forecasts and whether it seems concerned by the euro's strength following its recent rise to $1.20.
Euro zone data also showed its economy shrivelled by slightly less than initially estimated in the second quarter, but the drop was still the sharpest ever as consumer spending caved in due to COVID-19 restrictions.
The yuan dipped against the dollar too in the offshore market, after U.S. President Donald Trump warned about "decoupling" the U.S. and Chinese economies.
The Australian dollar reversed course to drop 0.5% to US$0.7239 and the New Zealand dollar slid 0.8% to US$0.6636 following a Sunday statement from the central bank, which again raised the prospect of negative rates.
In emerging markets, Turkey's lira hit another record low and Russia's rouble sagged to it lowest since April amid ongoing talk about fresh Western sanctions.
(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Marc Jones in London Editing by Nick Zieminski) ((gertrude.chavez@thomsonreuters.com; 646-301-4124; Reuters Messaging: rm://gertrude.chavez.reuters.com@reuters.net))
