Hopes of progress in US-China talks lift euro

London

THE euro rose from a three-month low on Thursday as hopes of progress in China-US trade talks lifted risk appetite towards major currencies across the board, with the British pound the only laggard before a parliamentary debate on Brexit.

Even economic data showing Germany's economy stalled in the fourth quarter of 2018 with Italy already in recession failed to pull the euro significantly lower in quiet trading.

"If we had a negative print on German growth, that may have hit the euro but we need to await for more details on his strategy towards the European auto sector before pushing the euro higher," said Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets in London.

Market analysts fear that US President Donald Trump could turn his attention to European imports after China and potentially impose tariffs on European automakers in the coming days. The United States is the main export destination of European Union cars, well ahead of China, and the impact is significant especially for Germany, which has the biggest value added in exports of cars to the US

Massive option expiries amounting to US$1.2 billion around US$1.13 were expected to keep the euro spot market in a tight range.

Risk appetite grew after China reported dollar-denominated exports rose 9.1 per cent in January from a year earlier and imports dropped 1.5 per cent.

The strong trade data fuelled gains by the Chinese currency in the offshore market. The yuan gained a quarter of a per cent to 6.7635.

The Australian dollar, a barometer for global risk appetite, was up 0.6 per cent at US$0.7132 and on track for its best three-day rising streak so far this year.

Bloomberg reported that Mr Trump was considering pushing back by 60 days a March 1 deadline for resolving trade disputes with China, citing people familiar with the matter.

Elsewhere, German data showed its economy stalled in the final quarter of 2018, narrowly avoiding recession. But the numbers were in line with forecasts and weak eurozone GDP data for the quarter had already tempered expectations.

Broadly, the euro zone economy slowed as expected year-on-year in the last three months of 2018.

The euro rose 0.1 per cent to US$1.1271 and just above a three-month low of US$1.1248.

The pound fell more than a quarter of a per cent to the day's low at US$1.2806 before a parliamentary vote that could give investors a sense of which way a forthcoming vote on Prime Minister Theresa May's deal with Brussels will go. REUTERS