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Political, trade uncertainties cloud euro's longer-term outlook

New York

THE euro 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.

The euro registered a weekly gain of nearly 0.5 per cent against the dollar, reversing the prior week's 1.35 per cent drop tied to the European Central Bank's hint it that would hold interest rates through the summer of 2019.

The euro's advance, together with a rebound in commodity-linked and emerging market currencies, pressured the dollar which ended lower on the week.

"The German and French data were better. There was more assurance from the Italian government about staying in the single currency," said Minh Trang, senior currency trader at Silicon Valley Bank in Santa Clara, California.

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Business activity in Germany and France, the eurozone's top two economies, picked up in June despite trade tensions between Europe and the United States, IHS Markit data showed.

The current Italian government "does not want to exit the euro", Claudio Borghi, a top lawmaker in the far-right League party, said in a newspaper interview.

The single currency was also bolstered after Greece clinched debt relief and received a cash infusion from the eurozone.

The euro rose 0.5 per cent to US$1.1662, and increased 0.6 per cent to 128.17 yen.

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

US President Donald Trump on Friday called for a 20 per cent levy on European Union-assembled car imports.

German Chancellor Angela Merkel faces pressure to deal with the migration dispute that has divided Europe and threatened her own government.

"It's hard to be bullish on the euro," said Paresh Upadhyaya, director of currency strategy at Amundi Pioneer Investments in Boston.

An index that tracks the dollar versus a basket of currencies including the euro was down 0.24 per cent at 94.517, retreating from an 11-month peak of 95.529 on Thursday.

The greenback also weakened against commodity-linked and emerging market currencies as worries about a global trade war were offset by a perceived modest increase in oil output by Opec producers.

A bounce in Brent crude prices, which were up 3 per cent, helped rekindle some investor confidence in higher-yielding currencies, analysts said. Opec agreed to a modest increase in oil production after its leader Saudi Arabia persuaded archrival Iran to cooperate.

The Australian dollar rose nearly 0.9 per cent at US$0.74400 after hitting a 13-month low on Thursday, while the South African rand rose one per cent at 13.4338 per dollar, recovering from a near seven-month trough earlier during the week. REUTERS

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