NEW YORK (Reuters) - Sterling declined on Monday, after the currency plunged to a 31-year low on Friday in what has been described as a "flash crash" event, with investors concerned Britain will make a hard exit from the European Union.
The dollar firmed across the board as it continued to benefit from expectations the Federal Reserve will most likely raise interest rates in December.
Investors are looking to Wednesday's release of minutes of the Federal Reserve Open Market Committee's meeting in September to determine how close the U.S. central bank was to raising rates. Traders last saw a roughly 70 percent chance that the Fed will increase rates in December, according to CME Group's FedWatch program. But the focus of the market during the U.S. Columbus Day holiday has been squarely on the British pound after the currency's thrashing on Friday. The pound has fallen for three straight sessions.
"Investors predict further declines as hard Brexit seems increasingly inevitable," said Paresh Davdra, chief executive and co-founder of Rational FX in London, an online FX service.
The Bank of England's trade-weighted index, which did not price during sterling's 10 percent off-session crash in Asia on Friday, hit its lowest since 2009 on continuing worries about the impact of Britain's exit from the European Union.
In afternoon trading in New York, the pound was down 0.64 percent against the dollar at $1.2352 GBP=.
The dollar was last up 0.75 percent against the yen at 103.67 yen JPY= after touching a session high of 103.78 yen. The dollar also rose against the euro, which was last down 0.54 percent at $1.1139 EUR=. These gains helped push the dollar index up 0.29 percent to 96.916 .DXY.
The Mexican peso, which has been pressured since May by Trump's promises to clamp down on immigration and rethink trade relations, surged to a one-month high against the dollar as the chances of a victory for the Republican nominee in next month's elections seem less likely.
"The move in the peso is just a confirmation of the market’s feeling that Trump is going to lose," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.The Mexican currency MXN=D2 rose more than 2 percent against the U.S. dollar, which fell to a one-month low of 18.795 pesos after the second presidential debate between Trump and Democratic nominee Hillary Clinton.
Reporting by Gertrude Chavez-Dreyfuss and Sam Forgione; Additional reporting by Patrick Graham in London; Editing by Meredith Mazzilli and Steve Orlofsky