Euro firms on auto tariff delay hopes but election worries cap gains
The euro edged higher against the dollar and sterling on Thursday as the threat of U.S. tariffs on autos was pushed back, though the rise was capped by unease about this weekend’s European parliamentary elections.
The single currency was up 0.1% at $1.1209 and up 0.2% against sterling at 87.41 pence, adding to late gains in the previous session after U.S. officials said President Donald Trump was expected to delay implementing tariffs on cars and parts by up to six months.
“The news had a limited impact – the stock market reacted a little bit more – but we think the euro will be much more about domestic politics now,” said Credit Agricole FX strategist Manuel Olivieri.
“The risk is that we get more populist comments, such as from the Italian Deputy PM (Matteo Salvini). Italy remains one of the factors keeping euro downside risks high.”
Salvini said on Wednesday that EU budget rules were “starving the continent” and must be changed, a day after saying Italy should be ready to break them.
News on auto tariffs also provided some support for the Japanese yen, which was up 0.1 percent against the dollar in early trade, adding to a strong run for the currency.
“The yen is the pick of the bunch this week as well as this month as bond yields have fallen everywhere,” said Societe Generale’s head of FX strategy, Kit Juckes.
German 10-year bond yields moved below their Japanese counterpart this month.
With the United States directing its trade-related ire mostly at China, currencies more vulnerable to risk sentiment have taken a hit.
The Australian dollar, heavily exposed to economic shifts in China, hit a five-month low on Thursday though this also had to do with bruising domestic economic data.
Australia’s unemployment rate rose to its highest in eight months, cementing views its central bank may be forced to lower borrowing costs soon to stimulate the economy.
The currency dropped to $0.6893 in the Asian session though it clawed back the losses by mid-morning in Europe and was trading around flat at $0.6933.
Money markets are wagering a rate cut might come very soon, with futures showing a 50-50 chance of a quarter-point easing in June. A move to 1.25% was put at a 90% probability for July and was more than fully priced by August.
In Europe, the Swedish crown led the losses, weakening 0.2% to 9.6145 per dollar, not far from the all-time low of 9.661 it hit a week ago.
“The Aussie has remained under pressure with labor and unemployment data being what it is, while RBA rate cut expectations have increased,” said Manuel Olivieri, an FX strategist at Credit Agricole.
Australia’s 10-year bond yield hit an all-time low of 1.639%.
Source: Reuters (Reporting by Abhinav Ramnarayan; Editing by Andrew Cawthorne and John Stonestreet)