The European single currency, euro, on Monday, May 14, headed for a third successive day of gains on driven by the weaker dollar.
The single currency crept higher even as investors kept a wary eye on political events in Italy.The euro gained 0.4 percent to $1.1986, having fallen last week to $1.1823, its weakest since Dec. 22.
Italy’s anti-establishment 5-Star Movement and the far-right League, both hostile to European Union budget rules, spent the weekend in talks to forge a common policy programme. The parties were adversaries as recently as March but now look likely to form Italy’s next government.
“Italian politics aren’t a major moving factor in the euro zone yet. It’s not an existential threat and isn’t driving a lot of positioning,” said Manuel Oliveri, an FX strategist at Credit Agricole in London.
“I expect inflation to rebound in the euro zone and that will keep the European Central Bank’s stimulus unwinding on track,” he said.
A loss of economic momentum in Europe has made policymakers in the euro zone and Britain more cautious about ending the era of extraordinary monetary stimulus.
On Friday, ECB President Mario Draghi said the euro zone needed a new “fiscal instrument” to help weaker member nations if they were being overly penalised by investors during a debt crisis.
Traders pushed out expectations of a rate rise in Britain to end-2018 and in the euro zone to the second half of 2019.
Analysts at ACLS said they expected a reduction in trade tensions between the United States and China to fuel risk-on sentiment this week that would be positive for the Australian dollar and negative for the yen, considered a safe-haven currency.
Investors are focused this week on speeches by Fed and ECB officials, as well as German data on Tuesday that is expected to show some slowdown in economic growth, Reuters reports.
