Euro rises but investors wary of US tariff deadline

London

THE euro rose on Tuesday after a better-than-expected German economic sentiment survey, with moves limited by doubts that the release will change the rhetoric of the European Central Bank (ECB).

The dollar was little changed versus the safe-haven Japanese yen as investors remained wary of a deadline for US tariffs on China, the British election and upcoming Federal Reserve and ECB meetings. It was weaker against a basket of major currencies.

"The message from the ECB is unlikely to change much," while the Fed could cut rates next year, which means markets' focus is likely to stay on the Fed, said Richard Falkenhäll, senior currency strategist at SEB.

"It's too early to expect any major change when it comes to ECB communication," he said.

The focus for now is whether Washington will go ahead with a new round of tariffs on Chinese goods on Sunday, or whether a deal with China can be reached before then.

White House economic adviser Larry Kudlow said on Friday that the Dec 15 deadline is still in place, but Agriculture Secretary Sonny Perdue suggested it may not be imposed.

The euro rose 0.2 per cent to US$1.1082 after a survey found that the mood among German investors improved more than was forecast for December.

The dollar was flat against the Japanese yen at 108.56. Against a basket of currencies, the dollar traded down 0.1 per cent at 97.513.

The Chinese yuan - the currency most sensitive to the US-China trade war - was also trading neutral against the US dollar in the offshore market, last at 7.0398.

Soaring inflation in China had little effect on a market waiting for trade news.

Kit Juckes, macro strategist at Societe Generale, called markets "dull".

Investors are almost certain the Fed will leave rates unchanged when its two-day meeting ends on Wednesday. In a year, however, money markets are pricing in a full 25-basis-point cut.

The ECB is likewise expected to keep interest rates steady on Thursday. A probability of less than 50 per cent for a 10-basis-point rate cut by the end of next year is priced into the euro zone money markets right now.

The pound rose to a seven-month high of US$1.3190 on expectations that the Conservative Party will win a majority in the British election on Thursday.

Against the euro, sterling was up 0.2 per cent at 84.05 pence, close to a 21/2-year high of 83.94 pence it reached on Monday. REUTERS