May 7, 2020 / 8:15 AM / a month ago

FOREX-Euro ends three days of selling; Turkish lira hits record low

* Euro edges higher, first rise after ECB ruling

* Turkish lira slumps to record low vs dollar

* BoE leaves rates steady, holds off on stimulus

* Graphic: World FX rates in 2019

By Dhara Ranasinghe

LONDON, May 7 (Reuters) - The euro inched up after three days of selling on Thursday, but traders remained cautious amid concern over the European Central Bank’s stimulus scheme following a German court ruling this week.

Turkey’s lira fell to a record low of 7.25 per U.S. dollar , extending its losses after comments from a Federal Reserve policy maker which traders interpreted as ruling out prospects of the Fed extending a swap line to Ankara.

Sterling rallied after the Bank of England left interest rates steady and held off on more stimulus. The safe-haven yen edged away from near seven-week highs against the dollar.

The euro rose to $1.0808, not far from the week-and-a-half lows hit a day earlier around $1.0782. It has shed more than 1.5% this week and is set for its biggest weekly drop in just over a month.

That weakness follows a ruling by Germany’s highest court on Tuesday that the ECB had three months to justify purchases under its bond-buying programme, or lose the Bundesbank’s participation in one of its main stimulus schemes.

Commerzbank analyst Antje Praefcke said that the frightening realisation appeared to be taking hold in markets that things could deteriorate further for a euro zone battered by the coronavirus pandemic.

“Then add the German Constitutional Court’s ruling on the PSPP (Public Sector Purchase Programme) the day before yesterday to that and the toxic mix for the euro is complete,” she said in a note.

Partly on the back of the German ruling, Deutsche Bank analysts have cut their euro view from bullish to neutral and revised their mid-year forecast to $1.08, down from $1.13 previously.

Sterling gained 0.4% against the euro and the dollar after the Bank of England held off on further stimulus.

Stronger-than-expected Chinese export numbers lifted hopes in global markets that China can rebound quickly and help global growth recover from a coronavirus-induced shock.

That helped reduce demand for the safe-haven yen. The U.S. dollar was last up 0.2% at 106.31 yen, having fallen on Wednesday to 105.985, its weakest since mid-March.

Chinese exports rose 3.5% despite expectations of 15.7% drop, helping to lift the Chinese yuan and the Australian dollar.

The Aussie dollar was last up 0.8% at $0.6473.

Still, there was general caution in markets given renewed signs this week of tension between the United States and China as the Trump administration weighs punitive action against Beijing over its early handling of the virus outbreak.

President Donald Trump said on Wednesday he was closely watching to see if China is fulfilling its obligations under a Phase 1 trade deal the two countries signed in January before the coronavirus spread globally.

“Last month we saw an easing in risk-off trades. But such optimism may not last long,” said Shinji Ishimaru, senior currency analyst at MUFG Bank. “We are likely to begin to see how severe normalisation will be after the great lockdown.” (Reporting by Dhara Ranasinghe; additional reporting by Hideyuki Sano in Tokyo; editing by Larry King)

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