NEW YORK: The euro rebounded on Monday as hopes for a Ukraine peace deal improved along with prospects for tighter dollar-interest rate differentials ahead of a possibly pivotal steer on US economic growth in the February payrolls report late in the week.
Ukrainian President Volodymyr Zelenskiy received a warm welcome in Britain after his meeting with US President Donald Trump ended in disaster on Friday, nudging the euro to a 16-day low. British Prime Minister Keir Starmer said on Sunday that European leaders had agreed to draw up a peace plan to present to Washington.
The Kremlin said on Monday that someone would have to force Zelenskiy to make peace.
The single currency was up 1.11% at $1.049, pulling away from Friday’s low of $1.0359.
The single currency slightly extended gains after the midmorning release of February’s US ISM manufacturing PMI that came in at 50.3, below expectations and January’s 50.9 reading.
The major scheduled events of the week look to be Thursday’s European Central Bank policy meeting and Friday’s US employment report.
Analysts said a possible peace deal in Ukraine and a likely increase of fiscal spending by euro zone countries could provide a boost to future growth, supporting the currency.
European Commission President Ursula von der Leyen will inform member states on Tuesday about plans to strengthen the European defence industry and the EU’s military capabilities, she said on Monday.
Meanwhile, the parties in talks to form Germany’s new government are considering quickly setting up two special funds potentially worth hundreds of billions of euros, one for defence and a second for infrastructure, three people with knowledge of the matter told Reuters.
“The defense side of things is probably somewhat supportive,” said Shaun Osborne, chief foreign exchange strategist at Scotiabank in Toronto.
Osborne said a smaller-than-expected fall in euro zone inflation also helped underpin the euro. Consumer price inflation in the 20 nations sharing the euro slowed to 2.4% in February from 2.5% a month earlier, just above expectations for 2.3% and moving a step closer to the European Central Bank’s 2% target, data from Eurostat showed on Monday.
“Short-term variables are shifting quite significantly in favor of the euro. Over the last little while, short-term spreads, rate differentials have narrowed quite significantly,” he said, adding that differentials are still very negative for the euro.
The euro jumped against other safe-haven assets such as the Japanese and the Swiss currencies.
The US dollar index - which measures the currency against the euro, sterling, yen, Canadian dollar and two other major rivals - fell 0.67% to 106.59 as investors kept an eye on Trump’s tariff plans.
The Canadian dollar and the Mexican peso rose as negotiations with Canada and Mexico pressed on.
They gained some support after US Commerce Secretary Howard Lutnick said Canada and Mexico have done a good job on the border and that Trump would decide on tariffs later on Monday and release the decision on Tuesday. Dollar/Canada was off 0.47% at 1.4396 and the dollar was down 0.63% vs the peso at 20.4070 pesos.
“We remain bullish on the dollar ahead of the next round of tariffs, but if we are right with our baseline calls for a tariff delay and soft US data, this should not be a good week for the greenback,” Francesco Pesole, strategist at ING, said.
Against the Japanese yen, the dollar weakened 0.27% to 150.19.
Comments
Comments are closed for this article.