Euro gets respite from German index rebound

London

THE euro inched up against the US dollar on Monday after a stronger-than-expected German business survey offered some respite, though it stayed close to a two-year low on bets of more easing in the eurozone.

A monthly business climate index rebounded in November, in a sign that Europe's largest economy is gaining momentum after narrowly avoiding a recession in the third quarter.

The euro gained 0.2 per cent to trade at US$1.24110, having earlier traded as low as US$1.2359, within a whisker of a two-year low hit earlier in the month.

On Friday, European Central Bank chief Mario Draghi threw the door open for more drastic measures as he stressed that"excessively low" inflation had to be raised fast. That sent the euro down over 1.2 per cent - its biggest daily fall in 2½ months.

Derek Halpenny, European head of global markets research at Bank of Tokyo-Mitsubishi UFJ in London, said there is scope for the euro to strengthen into the end of the year, particularly as December tends to be a strong month for the shared currency.

But Ian Stannard, head of European FX strategy at Morgan Stanley in London, said the tone of Mr Draghi's comments has convinced the market that the ECB is committed to increasing its balance sheet by whatever means necessary, which would push the euro lower.

The dollar gained 0.4 per cent against the yen to 118.26. It hit a seven-year high of 118.98 yen last week after Prime Minister Shinzo Abe called a snap election and delayed a planned sales tax hike. The Swiss franc was weaker against the euro at 1.2025 francs, having eased away from a 26-month high last week.

Meanwhile, most emerging Asian currencies rose as the prospect of further stimulus in China and Europe bolstered risk sentiment, after a surprise rate cut by China's central bank underscored policymakers' determination to fend off deflation risks.

Malaysia's ringgit outperformed regional peers after the government decided to abolish fuel subsidies.

The South Korean won gained on exporters' demand for month-end settlements. The Chinese yuan, however, fell after the People's Bank of China on Friday slashed benchmark lending rates by 40 basis points to support the world's second-largest economy. REUTERS