The US dollar hit its highest level in two months against the sterling on Wednesday on concerns over next year's Brexit negotiations, while expectations of higher US economic growth also underpinned the greenback. Sterling fell as much as 0.5 percent to a session low of $1.2201, its weakest since October 31. Britain faces uncertainty next year over Brexit negotiations. In October, Prime Minister Theresa May said she would trigger the process to leave the EU by the end of March.

Expectations that US President-elect Donald Trump's incoming administration would boost US growth through fiscal stimulus also continued to bolster the dollar. The dollar index, which measures the greenback against a basket of six major rivals, has gained 4.9 percent this year. All those gains have come after the November 8 US election. "This is just a continuation of the trend" of dollar strength, said Axel Merk, president and chief investment officer of Palo Alto, California-based Merk Investments. "People are trying to be aligned with the winning positions."

Merk said the challenges in Britain were not going away given the Brexit talks, and that "doesn't bode well for sterling." The euro fell about 0.7 percent against the dollar to a one-week low of $1.0385, while the dollar rose about 0.4 percent against the yen to a six-day high of 117.81 yen. The dollar index was last up 0.43 percent at 103.450 after hitting an eight-day high of 103.560 earlier. That remained below a 14-year peak of 103.650 struck December 20.

Copyright Reuters, 2016