Euro bounces to 1-week highs on hawkish comments

LONDON: The euro hopped to a one-week high on Tuesday as investors added positions on hawkish overnight comments by a policymaker that reaffirmed bets the euro zone economy's outlook remains robust.

The currency's rise this year has lost some momentum in recent days as political concerns - notably Spain's Catalan crisis - have grown pushing the euro down against the dollar more than 3 percent over the last month.

But on Tuesday, it bounced nearly 0.4 percent to $1.1789, its highest since Oct. 2, after overnight comments from Sabine Lautenschlaeger, a member of the European Central Bank executive board, calling for the ECB to roll back asset purchases in 2018.

"Her hawkish comments also appear supportive for the euro but the political overhang has taken the air out of the euro balloon, and this ongoing political uncertainty will most certainly cap any near-term rallies," said Stephen Innes, head of Asia-Pacific trading at OANDA.

Also helping sentiment was strong data from Germany. Industrial output posted its biggest monthly rise in more than six years in August, data showed on Monday. Data from France and Britain are due later in the day.

The dollar ran into some profit taking on Tuesday with the currency dropping a fifth of a percent against a trade-weighted basket of its rivals.

The index was last at 93.47, down 0.2 percent on the day but still in reach of a 10-week high of 94.267 scaled on Friday when surprisingly stronger U.S. September wages data enhanced already high expectations that the Fed would hike rates for a third time in 2017.

"The market will be keeping a side glance on North Korea, but much of the latest tension could have been priced in on Friday when the dollar slipped," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities.

"Still, the dollar is well supported and not an easy currency to sell at the moment after Friday's data showed that U.S. wages are improving steadily."