German ZEW economic survey lifts euro in thin liquidity

London

THE euro inched higher on Tuesday after investor sentiment in Germany improved more than expected in August. The ZEW survey of economic sentiment rose to 71.5 from 59.3 points the previous month, far exceeding a forecast for 58.0 in a Reuters poll of economists. As a result, euro/dollar gained 0.5 per cent to US$1.1809.

The move was exacerbated by thin August liquidity, though, said Jane Foley, senior currency analyst at Rabobank, and she was "suspicious" about how much effect the ZEW survey had. "We need to wait till September to see clear direction coming from euro/dollar," Ms Foley said.

The euro had been bolstered recently by views that the continent was handling the novel coronavirus-induced economic slowdown much better than the United States.

In early European trading, the US dollar maintained its gains, amid US-China tensions and a stalemate in the US Congress over fiscal stimulus. But fresh data showing that the rest of the world was outperforming the United States quickly removed those gains.

The dollar earlier at US$1.1722, its strongest since Aug 4. Before that, the dollar had been declining for seven straight weeks. The dollar was last up 0.1 per cent against the Japanese yen at 106.09 as US 10-year Treasury yields rose to two-week highs before a quarterly US refunding auction on Tuesday.

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Congressional leaders and Trump administration officials said on Monday that they were ready to resume negotiations on a Covid-19 aid deal. It was unclear whether they could bridge their differences.

Meanwhile, China imposed sanctions on 11 US citizens, including Republican lawmakers, following Washington's sanctions on Hong Kong and Chinese officials.

And US Treasury Secretary Steven Mnuchin said companies from China and other countries that do not comply with accounting standards will be delisted from US stock exchanges as of the end of 2021.

Market response to the US-China conflict has been limited, but analysts say there could be longer-term implications.

The Norwegian kroner, has flourished as oil prices rose, becoming the best performer so far this week alongside the Canadian dollar and the Russian rouble, according to MUFG analysts. The kroner was last up one per cent at 8.9485 to the dollar, boosted by Monday's central bank report that showed Norges Bank was one of the least dovish G10 central banks.

The Canadian dollar rose 0.5 per cent to US$1.3284.

Sterling traded at US$1.3121, up 0.4 per cent on the day, after Bank of England deputy governor Dave Ramsden said in an interview published on Tuesday that the central bank will step up quantitative easing if the British economy struggles again. REUTERS