Euro steadies as surveys hint at economic recovery

London

THE EURO steadied on Tuesday after economic surveys showed tentative signs of recovery in the eurozone economy, but warnings from bond markets continued to worry investors.

The euro held around US$1.13 and analysts said a stronger-than-forecast German business confidence survey on Monday was buoying the single currency.

But German 10-year bund yields remained below zero and that alarmed global stock markets despite some steadying on Tuesday.

The euro has remained in a range of US$1.12 to US$1.16 in 2019 despite a slowdown in the euro zone economy that has prompted fresh stimulus from the European Central Bank.

"We expect EUR/USD to stabilise around the current level of 1.13 and see a limited downside for the rest of week," said currency strategists at ING.

The dollar recovered after global markets recoiled on Monday following an inversion in the US Treasury yield curve, which has signalled a recession in the past.

With the dollar mixed across the board, risk appetite recovered, helping to lift the Australian dollar, the Swedish crown and the Norwegian crown.

Meanwhile, the Swiss franc, which tends to strengthen during economic and political turmoil, neared a 20-month high versus the euro of 1.12.

Gains by the safe-haven franc are being driven by risk aversion amid doubts about the global economy and could prompt the Swiss National Bank to intervene to weaken the currency.

"In case of a no-deal Brexit the 1.10 level is likely to be reached very quickly again. And in fact we would then expect the SNB to intervene in the markets, preventing a stronger collapse of the EUR-CHF exchange rate," said Ulrich Leuchtmann, head of forex research at Commerzbank in Frankfurt.

"Even franc appreciation to 1.10 against the euro is likely to be annoying enough considering the SNB's efforts to stabilise inflation in positive territory."

The franc on Monday was weaker versus the euro at 1.1234.

Sterling bounced a quarter of a per cent on Tuesday after two eurosceptic lawmakers indicated they could agree to support British Prime Minister Theresa May's EU withdrawal deal rather than risk the UK parliament's cancelling Brexit altogether.

Lawmakers will now vote on Wednesday on a range of options, giving parliament a chance to indicate whether it can agree on a deal with closer ties to Brussels - and then try to push the government in that direction. REUTERS