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Euro drops ahead of planned US-China trade talks

London

THE euro slipped on Monday as the US dollar gained before trade talks between the United States and China, due this week, which investors hope will ease tensions between the world's two biggest economies.

Concerns that the currency crisis in Turkey could hurt eurozone banks and uncertainty about the Italian government's planned budget also weighed on the euro, analysts said.

The US dollar has gained in recent weeks, hitting a 2018 high last week, as investors sought safety, while emerging markets and the euro have suffered.

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"The euro is starting to reflect greater short-term domestic political angst," ING strategist Viraj Patel said. "Investors will be cautious over Turkey's medium-term economic plan, while the next month or so will also see a narrower focus on the risks around the Italian budget," he said.

Anticipated talks between Chinese and US officials in Washington to discuss trade will take place in the next few days, according to media reports. Analysts said that those attending will be lower-level officials, although hopes are high that the talks may yield a breakthrough in the months-long trade spat.

Dealers cited speculation that the talks could set the stage for a summit between US President Donald Trump and Chinese President Xi Jinping in November.

The euro fell as much as 0.4 per cent to US$1.1394, below the US$1.14 level which ruffled markets last week, but was still above 13-month lows of US$1.3010, also hit last week. The US dollar index rose 0.2 per cent to 96.314.

Traders are also preparing for the release of US Federal Reserve policy meeting minutes on Wednesday and the Jackson Hole symposium for insights into the likely direction of US monetary policy.

"Market participants will be eager to hear more details on the interpretation of the Fed's most recent comment that further gradual rate hikes were appropriate 'for now'. What does 'for now' mean, and might it imply a possible change in forward guidance?" MUFG analysts said.

"Given our view that US dollar bullishness has become a little excessive, this speech (by Fed chair Jerome Powell) on Friday could well be a catalyst for a sharp reversal the other way as long dollar positions are pared."

Positioning data released last Friday showed that speculators had increased their net long US dollar positions to the highest level since mid-January 2017. REUTERS