FOREX-Euro set for biggest weekly gain in four months

Reuters

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    * Euro breaks above $1.15
    * Single currency benefits from Fed pause expectations
    * Chinese yuan at 6-month high 
    * Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh

    By Tom Finn
    LONDON, Jan 11 (Reuters) - The euro on Friday was headed for
its biggest weekly rise in over four months with the dollar
weakening on cautious signals from the Federal Reserve about
further rate hikes.
     The euro has been stuck in a $1.12-$1.15 range for the last
three months due to growth fears and signs the European Central
Bank is unlikely to end its stimulus soon.
    But dovish Fed minutes this week have triggered dollar
selling allowing the euro surge to as high as $1.1581 and
propelling it past a 100-day moving average for the first time
in three months.
    "The euro remains supported by the soft dollar story. The
risk of a short squeeze perhaps to the $1.1620/ area remains,"
said Chris Turner, head of foreign exchange at ING in London.
    He added, though, that a soft macro outlook suggests "Europe
will struggle to attract rotational flows out of U.S. markets." 
    Despite its recent gains the single currency has been
pressured by a slew of weaker-than-expected economic data,
especially from France and Germany.
    The European Central Bank is widely expected to remain
accommodative in 2019, which traders say should prevent the
currency from breaking much higher.
    Another possible reason for euro strength is a resurgence
this week in the offshore Chinese yuan, said Kit Juckes, a
currencies strategist at Societe Generale.
    "A stronger yuan means that 23.6 percent of the euro's
trade-weighted basket is going up, and that means that even a
currency weighed down by domestic economic and political woes
can get a little lift against the dollar," he said.
    The yuan has breached the key 6.8 per dollar level in both
onshore  CNY=CFXS  and offshore  CNH=EBS  trade.
    China and the United States have extended trade talks in
Beijing, boosting oil prices and broader sentiment.
    That has lifted the yuan to its highest level since late
July along with recent assurances from Beijing of further fiscal
boosts to the slowing economy.
    U.S. Treasury Secretary Steven Mnuchin said late on Thursday
that Chinese Vice Premier Liu He will "most likely" visit
Washington later in January for trade talks. 
    Currencies such as the Australian dollar  AUD=D3 , a gauge
of risk appetite, and the New Zealand dollar  NZD=D3 , are
likely to see further gains if a U.S.-Sino trade deal is
reached, said Sim Moh Siong, currency strategist at Bank of
Singapore.
    The dollar index  .DXY  on Friday fell by 0.2 percent to
95.32. The index has fallen around 2.2 percent since
mid-December on expectations that a slowdown in growth, both in
the United States as well as globally, will restrict the Fed
from raising rates in 2019.
    Markets are now pricing in no further rate hikes by the Fed
this year.
    In 2018, the greenback outperformed its peers, gaining 4.3
percent as the Fed hiked rates four times on the back of a
strong domestic economy.
    Elsewhere, sterling  GBP=D3  traded marginally weaker,
fetching $1.2737 with traders focused on the progress of Brexit.
    British Prime Minister Theresa May must win a vote in
parliament to get her Brexit deal approved or risk seeing
Britain's exit from the European Union descend into chaos. The
vote is now due to take place on Jan. 15.

 (Additional reporting by Vatsal Srivastava; Editing by Toby
Chopra)
 ((tom.finn@tr.com; +44 2075427508 ; Reuters Messaging:
tom.finn.reuters.com@reuters.net))

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