Euro falls as recent US dollar selling pauses

London

THE euro fell on Monday as traders that have pushed the single currency to multi-year highs took a breather and prepared for the European Central Bank (ECB) meeting on Thursday to see if policymakers will introduce yet more stimulus.

The US dollar has tumbled to more than two-year lows against the euro in recent weeks as investors bet US interest rates would stay low for longer just as European policymakers agreed a significant recovery fund to boost the economy in Europe.

But the greenback has steadied in recent sessions, especially after the euro's brief flirtation with the US$1.20 level was followed by selling of the single currency.

Kit Juckes, FX strategist at Societe Generale, said that while investors' euro long positions were not growing, "they're huge and rate/yield differentials aren't moving in a supportive direction any more either." He added that the "'Europe's doing better than the US' story is tired", leaving euro-dollar range-bound for now.

US jobs data on Friday also helped the greenback. The US Labor Department report showed that US employment growth slowed and permanent job losses increased as government funding started running out.

Still, the jobless rate fell to 8.4 per cent from 10.2 per cent in July - but Mr Juckes said the numbers showed a productivity surge as employment growth lagged rebounding US economic growth.

Attention is turning to Thursday's ECB meeting, where investors are not expecting any major policy changes but will listen closely for anything said about the euro after a blistering rally that has likely unnerved some policymakers.

"Jawboning by ECB officials worried about the euro's rise has helped calm fevered USD bearishness," said Alvin Tan, an FX Strategist at RBC Capital Markets.

By 1030 GMT, the euro was down 0.2 per cent at US$1.1815 while the dollar index, which measures the US dollar against a basket of currencies, gained 0.2 per cent to 93.082.

US financial markets were closed for the Labor Day holiday so trading volumes are likely to be thinner than usual.

Elsewhere, the big mover was sterling, which slid one per cent after Britain reportedly threatened to override its European Union divorce deal.

The currency weakened to as low as US$1.3145, while against the euro it dropped 0.8 per cent to 89.88 pence. Against the yen, the US dollar traded at 106.26, unchanged on the day. REUTERS