July 25, 2018 / 2:15 AM / 4 months ago

Euro edges up ahead of Trump-Juncker talks

LONDON (Reuters) - The euro edged higher on Wednesday ahead of a meeting between U.S. President Donald Trump and European Commission President Jean-Claude Juncker but gains were limited with investors cautious about a trade rift between the two powers.

FILE PHOTO - A picture illustration shows U.S. Dollar and Euro banknotes in Sofia March 12, 2015. REUTERS/Stoyan Nenov

Lack of clarity over where a brewing trade spat between the U.S. and Europe is heading kept most major currencies, including the U.S. dollar, range-bound on Wednesday as Juncker travelled to Washington for trade-focused talks with Trump.

The talks come after the U.S. imposed tariffs on European Union steel and aluminium and Trump’s threats to extend those measures to EU-made cars.

“Risks remain tilted to the continuation of the tough rhetoric by the U.S. President,” said, Chris Turner, head of currency strategy at ING in London.

“Given that the risk of auto tariffs is a well-known threat, any major breakthrough today may not be enough to materially affect risk appetite. Rather, we look for the FX markets to remain stable today,” he added.

The single currency was up 0.1 percent at $1.1694. The dollar versus a basket of major currencies traded broadly flat at 95.55.

Some are puzzled at how little the impending U.S. tariffs have budged the euro in recent weeks.

“The euro continues to stagnate in a sideways range despite the risk of a trade war becoming increasingly obvious ... and despite many political lapses on the part of the U.S. President,” said Commerzbank currency strategist Ulrich Leuchtmann, in Frankfurt.

“But FX markets cannot ignore economic realities for long ... The next trend will come. The only question is when.”

Investors were also eyeing a European Central Bank (ECB) policy meeting on Thursday for direction.

The ECB guided markets for steady rates “through the summer” of 2019 at a meeting last month, when it also announced it would shut its signatory bond-purchasing programme in December.

Against the yen, the dollar was 0.1 percent higher at 111.32 yen per dollar.

The yen found some support early this week on expectations the Bank of Japan might be a step closer to scaling back some of its aggressive monetary stimulus.

The Australian dollar slumped after data on Wednesday showed inflation remained stubbornly low last quarter despite fairly robust economic growth. It traded 0.2 percent lower at $0.7407.

Risk appetites remained mostly firm, supported by strong U.S. corporate earnings and hopes that China will boost fiscal support for its economy.

The offshore yuan strengthened 0.3 percent to 6.7905 per dollar.

Kazushige Kaida, head of foreign exchange at State Street Bank in Tokyo, said the market is waiting to see how Beijing would react if the United States moves to put tariffs on all $500 billion of its imports from China.

In a CNBC interview broadcast on Friday, Trump said the U.S. was “down a tremendous amount” and he was “ready to go to 500”.

Additional reporting by Daniel Leussink in Tokyo

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