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Euro rebounds as US dollar dips ahead of Fed meeting


THE EURO recovered nearly half a per cent from recent lows on Monday as the US dollar slipped, with traders reluctant to push the US currency much higher before the Federal Reserve's policy meeting this week.

In quiet London trading, most currencies were little changed before key policy events in the United States and China.

Last week, the US dollar enjoyed its best weekly performance since September, reaching an 18-month high. The euro weakened after the European Central Bank cut inflation and growth forecasts and struck a cautious tone about the outlook for the world economy.

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The mood on Monday, however, was less positive for the dollar.

Speculators cut net long bets on the dollar last week from a near two-year high, according to Commodity Futures Trading Commission data.

The Fed begins its two-day policy meeting on Tuesday and is expected to raise rates for a fourth time in 2018. All eyes will be on signals about the pace of further tightening and the Fed's sense of how the economy is holding up amid a US-China trade conflict and global financial market volatility.

"This week is all about the Fed. There is a good chance we will have a further dip in euro/dollar given that they are going to hike and the market is only expecting two more in 2019," said Christin Tuxen, FX analyst at Danske Bank. Risk was tilted to the Fed sounding more hawkish than expected, she said.

The euro rose 0.4 per cent on Monday, rising as high as US$1.1354 even though EU statistics office Eurostat earlier lowered November's inflation reading. The euro fell as low as US$1.1270 last week.

The US dollar index, which measures it against a basket of currencies, slipped 0.3 per cent to 97.154, below last week's 18-month high of 97.711.

Weaker-than-expected economic data from China and Europe last week sent investors towards the perceived safety of the dollar.

"We continue to expect that euro/dollar will remain range bound but euro will underperform on crosses in the near term," Goldman Sachs analysts wrote in a note to clients, pointing out the ECB's downbeat assessment and signs that street protests in France were beginning to weigh on business sentiment.

The offshore Chinese yuan, which has fallen significantly in 2018, rose 0.1 per cent to 6.8962.

Investors are now looking to a major speech by President Xi Jinping on Tuesday to mark the 40th anniversary of China's market reforms and opening up. China is also expected to hold its annual Central Economic Work Conference this week.

The yen was unchanged at 113.39 yen per US dollar.

Sterling added half a per cent to US$1.2646, buoyed by the US dollar's move downwards. REUTERS