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Euro bounces off 2018 low as US dollar pauses

London

The single currency did recover some of its losses in European trading but traders and analysts said the rush by investors unwinding their short positions on the greenback was unlikely to be over.

Concerns about the US exit from an international nuclear deal with Iran had also supported the dollar in early Asian trading.

"It's a continuation of what we have been witnessing for the past few weeks," said Christin Tuxen, FX strategist at Danske Bank. "There might have been a bit of safe haven flows but overall it's to do with the US holding a favourable cyclical position." While there was talk of investors seeking out safe havens on Tuesday ahead of US President Donald Trump's announcement of a withdrawal from the nuclear deal, on Wednesday the Swiss franc barely budged versus the euro and the Japanese yen fell to a one-week low as the dollar gained half a per cent.

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Mr Trump's decision to exit the accord was most keenly felt in oil markets, where prices rallied.

The three-week long rally for the US currency, in which it has reversed several months of weakness, is dominating currency markets this week and has caused the unwinding of popular trading positions across emerging markets.

US Treasury rates have crept higher in recent weeks on expectations the Federal Reserve will tighten policy to combat inflation amid a huge government injection of fiscal stimulus under Mr Trump.

Forecasts for rising rates in the eurozone, by contrast, are being pushed back. Eurozone money markets now price roughly a 75 per cent chance of a 10 basis point hike from the European Central Bank by mid-2019, scaling back bets on a rate rise given a softening in economic data and inflation.

After falling 0.3 per cent to US$1.1823 versus the dollar, its lowest in 2018, the euro recovered to trade up 0.2 per cent at US$1.1883.

The euro has lost 1 per cent of its value in May as investors betting on a falling dollar were caught out and rushed to cover their positions, further pushing the greenback higher.

The dollar index fell 0.2 per cent from a 2018 high to 92.959. Against the yen, the dollar rose half a per cent to 109.675. REUTERS