FOREX-Euro drops to two-week low against the dollar

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* Appetite for safe-haven currencies recedes

* Dollar maintains gains

* China's central bank fixes yuan lower than expected

By Olga Cotaga and Stanley White

LONDON, Aug 16 (Reuters) - The euro fell to a two-week lowon Friday against the dollar, which extended the gains it madethe day before after U.S. retail sales data came out better thanexpected .

The dollar was on course to end the week up against theeuro, the Japanese yen and the Swiss franc as investors returnedto riskier assets. A stable offshore Chinese yuan helped improverisk appetite.

The euro was down by 0.2% at $1.108875EUR=EBS , the lowestit has been since Aug. 2.

Measured against a basket of six major currencies .DXY ,the dollar was higher in the early London trading at 98.210. Ithas recovered by about 1% from its three-week low on Aug. 9.

Data showing U.S. consumers kept spending in July came as arelief after the U.S. Treasury yield curve inverted this week,which historically has preceded U.S. recessions urn:newsml:reuters.com:*:nL2N25A16D.

The inversion stoked worries about the impact of theSino-U.S. trade war. The curve steepened a little on Friday US2US10=RR .

China on Thursday said it would retaliate for the latestU.S. tariffs on $300 billion of Chinese goods, but U.S.President Donald Trump said any pact would have to be onAmerica's terms, suggesting a resolution to the trade warremains elusive urn:newsml:reuters.com:*:nL4N25B2NR.

China's offshore yuan, whose plunge past 7 to the dollarlast week sent shivers through financial markets, was weaker onFriday at 7.0530 CNH=EBS . The People's Bank of China fixed theonshore yuan currency at 7.0312 on Friday, compared with marketexpectations at 7.0307, according to analysts at Commerzbank.

"While it was roughly in line with expectations, it might beworth noting that since yesterday, the actual dollar/onshoreyuan fixing rates have been slightly higher than the estimates,"the analysts said.

The fragile calm is unlikely to last, traders said.

"The most important point is there are more signs of aglobal economic slowdown," said Tsutomu Soma, general manager offixed income business solutions at SBI Securities in Tokyo.

"Rates will continue to fall, and investors will pull backfrom risk, which means money will leave emerging markets and goto Treasuries, the Swiss franc, gold, and the yen."

Sterling GBP=D3 was up 0.3% at $1.2118, close to aone-week high of $1.2150 and on course for its first weekly gainsince mid-July. Encouraging data on British retail sales andconsumer prices suggested the British economy was in bettershape than some investors had feared.

Against the euro, the pound reached an 11-day high of 91.50penceEURGBP=D3 .

However, the risk remains that Prime Minister Boris Johnsonwill take Britain out of the European Union without a transition agreement, causing short-term economic turmoil.

"I think sterling is likely to be more of a two-way marketnow as those opposed to Brexit rage, rage against the dying ofthe light. At the same time, we can't expect the Brexitsupporters, who have gotten this far, to just cry how brighttheir frail deeds might have danced in a green bay," saidMarshall Gittler, chief strategist at ACLS Global. (Reporting by Olga Cotaga in London and Stanley White in Tokyo;editing by Larry King) ((olga.cotaga@thomsonreuters.com))

This article appears in: Politics , World Markets , Economy , US Markets , Stocks
Referenced Symbols: EFX ,

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