By Stanley White
TOKYO (Reuters) – The euro was pinned near a three-year low versus the dollar ahead of a highly watched German survey on Tuesday, which is expected to show a sharp slump in investor confidence and fuel growing pessimism about the outlook for Europe’s largest economy.
Financial markets clung to tight ranges following a U.S. public holiday on Monday, shifting the investor focus to European news and developments in the coronavirus crisis.
Among Asian currencies, the Australian dollar slipped below the 67 U.S. cent level after minutes from the central bank’s last meeting revived the prospect of policy easing, while the Chinese yuan was weighed by worries about the economic fallout from the coronavirus epidemic.
Sentiment for the euro has worsened dramatically this month after weak manufacturing and gross domestic product data from Germany suggested that the euro zone is more vulnerable to external shocks that previously thought.
“The euro is close to testing an important support level at $1.08 due to the diverging economic outlook between the euro zone and the United States,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo.
“It looks a little oversold, so in the very short-term there could be a bounce, but the euro’s fundamentals still point more to the downside.”
Since the start of February, the single currency has lost 2.4% versus the greenback as disappointing economic data raised concerns that euro zone monetary policy will have to remain accommodative for much longer.
The euro’s next hurdle is the release of Germany’s ZEW survey later on Tuesday, which is forecast to show economic sentiment slipped from the highest since July 2015.
Sterling also nursed losses against the dollar and the euro due to worries about economic ties between Britain and the European Union as both sides laid out conflicting views on how to proceed with trade negotiations.
Prime Minister Boris Johnson’s Europe adviser David Frost said on Monday Britain would not be threatened into following EU rules to win a free trade agreement with the bloc.
Frost’s comments contrast with those of European Commission President Ursula von der Leyen, who has called on Britain to guarantee fair competition based on ambitious environmental and labor standards.
Britain left the EU last month and the two sides will now start negotiating a new relationship from trade to security.
The onshore yuan
China’s Hubei province, considered the epicenter of the coronavirus outbreak, said new cases of the illness fell slightly to 1,807 on Monday from 1,933 the previous day, although global experts warn it is still too early to say the outbreak is being contained.
Currency traders are cautiously monitoring new data on the virus given uncertainty about the actual number of cases and difficulties in estimating when the epidemic will peak.
The Australian dollar
The RBA kept rates unchanged at an all-time low of 0.75% at that meeting, but the minutes showed central bankers are prepared to ease policy further if needed.
The New Zealand dollar
The antipodean currencies have been buffeted by the virus due to Australia’s and New Zealand’s extensive trade ties with China, with commodities, tourism and education especially vulnerable.
(Reporting by Stanley White; Editing by Sam Holmes and Kim Coghill)