Euro sets 1-week high ahead of GDP data, dollar inches lower

The euro touched a one-week high on Tuesday ahead of the release of euro zone gross domestic product data, as the dollar struggled to gain traction in the wake of a surprisingly soft U.S. manufacturing report.

The euro rose 0.1 percent to $1.0986, having risen to $1.0990 earlier. That was the euro’s strongest level since May 8, when it climbed to a six-month high of $1.1024 after France’s presidential election.

With concerns about political risks in the euro zone having receded after centrist Emmanuel Macron was elected France’s president over far-right nationalist Marine Le Pen, focus is shifting back towards the outlook for monetary policy.

Investors are now focusing on when and how the European Central Bank (ECB) could scale back its quantitative easing given the recent strength in the euro zone economy.

“Long positions in the euro tend to be favored now, given the chances that the ECB could discuss the possibility of future policy changes at its June meeting,” said Shinsuke Sato, head of FX trading group for Sumitomo Mitsui Banking Corporation in Tokyo.

“Overall, there seems to be a mood of looking for chances to buy (euros) on dips,” he added.

Later on Tuesday, the euro could take cues from the second reading of the euro zone’s January-March GDP growth, as well as a speech by ECB Executive Board Member Benoit Coeure.

The dollar index, which measures the greenback’s value against a basket of six major currencies, eased 0.1 percent to 98.805.

The greenback had come under pressure on Monday after the New York Federal Reserve said its barometer on business activity in New York state unexpectedly fell in May, sinking into negative territory for the first time since October.

On the whole, Teppei Ino, analyst for Bank of Tokyo-Mitsubishi UFJ in Singapore, said the weak reading on New York manufacturing activity hasn’t substantially altered the positive sentiment toward the U.S. economy.

“I think people want to wait and see,” Ino said, adding the general view seems to be that the U.S. economy is still holding firm.

Against the yen, the dollar fell 0.3 percent to 113.52 yen, edging away from an eight-week high of 114.38 yen set last week.

The greenback has risen 1.7 percent against the yen so far this month, as risk sentiment improved after France’s presidential elections.

Market expectations for the Federal Reserve to raise interest rates in June have helped underpin the dollar recently.

“If strength in equities or rises in yields around the world continues, that will probably result in a supportive environment for the dollar against the yen,” said Shinichiro Kadota, senior FX strategist for Barclays in Tokyo.

Source: Reuters

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