LONDON: The euro clawed itself back over the $1.13 mark and riskier currencies like the Australian dollar rose on Monday as optimism over a breakthrough in US-China trade war talks boosted investor sentiment at the start of the week.
The euro has been stuck in a tight trading range since November as broadening weakness in the euro zone economy has offset a sharp dialing back in expectations for interest rate rises by the United States Federal Reserve this year.
But after hitting a three-month low on Friday, the euro has bounced back slightly - helped by the positive mood around risk assets as investors hoped for an end to the US-China trade conflict after both sides reported progress in talks.
"Generally the mood is still quite positive on the outlook for trade," said Adam Cole, a currencies analyst at RBC Capital Markets, adding that he thought the risk-on mood would continue.
"If anything we would be running with it. You have a background of quite decent growth and a Fed that is putting rates on hold."
However, he said a better way to play the Fed pause story was in dollar/yen, which he sees rising to 120 yen per dollar by end-2019 from current levels of 110.58.
The euro ticked 0.1 percent higher to $1.1303, while the dollar index - which measures the greenback against a basket of rivals - slipped 0.1 percent to 96.848 in a quiet session with US markets closed for a holiday on Monday.
Despite Monday's cautious gains, traders are betting on a weaker euro in the coming months as they expect the European Central Bank to keep its monetary policy accommodative due to low growth in the common currency area, tepid inflation and political uncertainties.
Commerzbank analysts said the euro remained vulnerable to any flare up in the US-European trade dispute too.
"There would be very little to report on the euro positive side if this conflict were to escalate. The smallest economic disruptions would no doubt be damaging for the euro in the light of the fragile state of the euro zone economy," they wrote.
The Australian dollar, seen as a barometer of risk sentment, rose 0.1 percent to $0.7147.
Sterling gained 0.1 percent to $1.2907 as traders awaited the next Brexit-related developments.
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