Euro slips as trade jitters keep FX markets on edge

London

A RALLY in the euro faded on Monday as the dollar edged up with trade tensions between the United States and the European Union (EU) seen deciding the near-term direction for the currencies.

Investors steered away from risk, with Asian equities in retreat and Treasury yields declining, after a report that US President Donald Trump plans to bar many Chinese companies from investing in US technology firms and block more tech exports to Beijing.

The report added to the sense of caution felt after Mr Trump on Friday threatened to impose a 20 per cent tariff on all cars imported from the EU. The EU responded by saying it would have no choice but to retaliate.

The euro at 0730 GMT on Monday was down 0.2 per cent at US$1.1629. The euro had climbed on Friday as traders were encouraged by improved regional economic growth data and new assurances by Italian politicians that their nation would not leave the single currency.

On Monday, the greenback rose 0.2 per cent against a basket of major currencies, moving towards an 11-month high. But the dollar hit a two-week low versus the safe-haven Japanese yen, another sign that the latest flare-up in global trade concerns has dented investor risk appetite.

"US plans to unveil limits on Chinese tech firms' investments in US companies have delivered another blow to risk sentiment this morning. The trade dispute drags on and the yen is the main beneficiary," said Societe Generale macro strategist Kit Juckes.

The greenback fell 0.5 per cent to 109.40 yen, its weakest since June 8.

Despite last week's gains, the euro still appears vulnerable to regional political instability and US tariffs.

"For the euro, there's a continuous potential for event risks, among other political crises in Berlin, and this means a disadvantage in the race for the status as the world's leading currency," said Commerzbank currencies strategist Ulrich Leuchtmann.

Commodity-linked currencies dipped as a surge in crude oil prices ran out of steam amid the latest round of trade jitters. Oil had rallied on Friday after Opec agreed to an unexpectedly modest increase in production from next month.

The Australian dollar was down 0.1 per cent at US$0.7432 after gaining 0.85 per cent on Friday. The Aussie had fallen to a one-year low of US$0.7394 last week, hurt by the Sino-US trade spat. REUTERS