* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh (New throughout, updates rates, market activity and comments; new byline, changes dateline, previously LONDON)
By Kate Duguid
NEW YORK, Nov 5 (Reuters) - The dollar dipped on Monday after three consecutive weeks of gains as investors took profits before U.S. midterm elections this week that may fuel volatility in global markets, and the British pound led gains on Brexit deal breakthrough hopes.
The U.S. midterm congressional elections on Tuesday are expected to help the Democratic Party win control of the U.S. House of Representatives, with Republicans likely to retain their majority in the Senate.
But market analysts warned that an unexpected outcome could trigger a massive unwind of long dollar positions and undermine the greenback which has rallied more than 7 percent from April lows against its rivals. That uncertainty kept investors from making big moves on Monday.
“The midterms tomorrow and the Fed later in the week are significant enough in terms of event risk to keep investors sitting on their hands,” said Shaun Osborne, chief FX strategist, at Scotia Capital.
The dollar index was down 5.3 basis points on the day at 96.39. Last week, it hit a June 2017 high of 97.20.
Notwithstanding a dollar selloff in the second half of last week, hedge funds added to their dollar holdings, taking net long positions to the biggest levels since Dec. 2016 as the latest data encouraged more bullish bets.
Speculators added to their net long U.S. dollar bets, taking the value of the net long dollar position to $26.74 billion in the week ended Oct. 30, nearing its highest level since Dec. 2016, according to latest futures data.
Broader moves in the currency markets were muted with the euro up slightly by 5.3 basis points at $1.140, helped by the softer dollar rather than Europe’s economic fundamentals.
Strong U.S. jobs data released last week brought into focus the diverging trends between a robust U.S. economy and its struggling European counterpart with a Citibank economic monitor showing the European index near 2018 lows.
Sterling was flat at $1.302, after rising earlier as expectations grew that Britain and the European Union are inching closer to a Brexit deal.
The currency was lifted by a report in Britain’s Sunday Times that an all-U.K. customs deal will be written into the legally binding agreement governing the country’s withdrawal from the European Union.
Reporting by Kate Duguid and Saikat Chatterjee Editing by Susan Thomas and David Gregorio