Euro struggles near 3-year low in Europe

The euro struggled near 3-year lows on Monday as investors worried about weakening growth in the region, while Chinese efforts to limit the damage from a coronavirus outbreak appeared to calm markets, with the yuan and Australian dollar supported.

Monday is light on economic data but traders are looking to a German business sentiment indicator due Tuesday and flash purchasing managers indexes on Friday for further evidence on the state of the euro zone economy.

Last week data showed in particular that momentum in Germany, the region's powerhouse economy, was struggling.

"EUR/USD seems to be comfortably trading around its new lows and in the next few days we expect to see a continuation in the recent downtrend rather than any clear rebound," said ING analysts.

"The fears around the coronavirus impact on the Eurozone economy remain well in place while data this week should be in line with latest releases in providing a non-encouraging picture."

The euro inched higher to $1.0836 after earlier falling to $1.0817, its weakest since mid-2017.

The currency has lost 2.3% of its value against the dollar so far in February.

Kit Juckes, an analyst at Societe Generale, said that while data shows that the market is building a short euro position, "it remains a long way from its peaks".

It was a quiet start to the week elsewhere, with the United States off for a public holiday.

The yen was unfazed by weak economic growth data in Japan. It traded down slightly at 109.91 yen per dollar.

Japan, the world's third-largest economy, shrank 1.6% in the three months to December, the largest drop in six years, hit by a sales tax hike.

With growth faltering in the euro zone and Japan, most market players expect the US economy to remain stronger among its developed world peers, although retail sales and industrial production numbers on Friday were disappointing.

The dollar index stood at 99.145 and earlier hit 99.180, its strongest since early October.

The Australian dollar held firm as investors assessed the latest reading on the coronavirus in China, where the number of cases rose but new deaths dropped.

The Aussie, used as a proxy for risk on Chinese assets, stood unchanged at $0.6717. The currency has partly been supported by expectations of stimulus from Beijing.

The offshore Chinese yuan gained 0.1% to 6.9838 per dollar.

Some analysts think the market may be underestimating the hit from the coronavirus on both China's economy and on growth in the rest of the world, especially Asia.

"For China, our new base case is 3.0% GDP growth in Q1, with the risk firmly skewed to an even lower number - too much damage has already been done and initial policy stimulus will not be very effective," Nomura strategists said in a research note.

Sterling slipped 0.3% to $1.3012, reversing some of its gains last week when the appointment of a new British finance minister raised expectations that the government would significantly lift public spending in next month's budget.