Euro rally fades as inflation hopes 'subdued'

London

Strong US jobs numbers and receding fears over a trade war helped a rebound in markets, and when markets have rallied this year, the euro has tended to benefit against the dollar, as traders bet investors will continue to put more money into a region where the economies are booming.

But the euro fell last week as the European Central Bank (ECB) said inflation expectations remained subdued and that monetary policy would remain "reactive".

After initially rising to a session high of US$1.2341 on Monday, the euro dropped 0.1 per cent to US$1.2297. The single currency, after a strong start to 2018, remains below the three-year peak hit in February of US$1.2556.

"The euro is still suffering in the aftermath of the ECB meeting," said Alvin Tan, currencies analyst at Societe Generale. "The cross-currents are affecting the euro." The dollar, which has tended to fall when risk appetite is rising, meanwhile reversed its falls to rise slightly.

With little crucial economic data due in Europe, traders will focus on a meeting of the eurozone finance ministers on Monday for any comments on trade protectionism after US President Donald Trump's decision to impose some tariffs.

Many analysts remain bullish on the euro.

"With the eurozone enjoying a massive 3.5 per cent GDP current account surplus and the euro not particularly volatile, we suspect it will be very hard for eurozone finance officials to talk down the euro," said Viraj Patel, FX strategist at ING.

The strong US jobs growth data released on Friday was counterbalanced by slower increases in wages, resulting in money market traders sticking to bets that the Fed would raise interest rates three times this year, with only around a one-in-four chance seen for a fourth rate hike in 2018.

Higher-yielding currencies such as the Australian and New Zealand dollars also rose 0.2 per cent and 0.3 per cent respectively.

The Japanese currency rose 0.2 per cent to 106.58 yen, edging away from a one-week high of 107.05 yen set on Friday. REUTERS