By Kevin Buckland and Alun John
TOKYO/LONDON (Reuters) -The dollar hovered near a five-month low against major peers on Monday, bruised by President Donald Trump’s erratic trade policies and soft economic data, at a time when other currencies, including the euro, benefit from domestic drivers.
The euro was last at $1.0905, up 0.2% on the day, and heading back towards the $1.0947 it hit last week, its highest since October 11.
The Japanese yen was also marginally stronger on the day at 148.48 per dollar, again after hitting its strongest in five months last week at 146.5 to the dollar.
That left the dollar index, which measures the U.S. currency against its six major counterparts, at 103.5, just off its five-month trough of 103.21 reached last Tuesday.
Currency markets have undergone a shift in recent months, as traders re-evaluate their initial expectations that Trump’s economic policies would both support the dollar and cause other currencies to weaken.
In fact the reverse has happened, and analysts at Societe Generale said on Monday that they had changed their currency forecasts “to reflect Germany’s planned fiscal changes, the U.S. economy’s self-inflicted (relative) fragility, and Japan’s escape from deflation”.
They see the euro at $1.13 by year-end and the yen at 139 per dollar.
‘IMPORTANT MOMENT’ FOR GERMANY AND EURO
German parties on Friday agreed on a fiscal deal that could boost defence spending and revive growth in Europe’s largest economy.
The deal will likely be approved by the outgoing parliament this week. It includes a 500 billion-euro ($544 billion) fund for infrastructure and sweeping changes to borrowing rules.
“This is such an important moment in Europe’s history that surely it will … confirm that 2022’s EUR/USD low isn’t seen again for at least a decade (or two),” said Societe Generale.
Meanwhile, the Bank of Japan is tipped to keep interest rates steady when it meets on Wednesday, but the conditions for another rate hike have been falling into place, with big Japanese firms offering bumper pay hikes in wage talks with unions for a third-straight year.
Speaking in parliament last week, BOJ Governor Kazuo Ueda said he expects wage rises to spur a pick-up in consumption, although he was “very worried” about uncertainties surrounding overseas economic developments.
As for the United States, data on Friday showed consumer sentiment plunged to a nearly 2-1/2-year low in March and inflation expectations soared amid worries about the effect of Trump’s sweeping tariffs, which have ignited a global trade war.
U.S. retail sales figures due later on Monday will offer the next insight into the health of the world’s largest economy.
The Federal Reserve meets on Wednesday and is expected to hold rates steady. The central banks of Britain, Sweden and Switzerland are also scheduled to meet this week, with markets expecting only the Swiss National Bank to cut rates.
Sterling rose 0.26% to $1.2971, in line with the euro.
Meanwhile, the Chinese yuan edged back towards its strongest level in four months in offshore trading, changing hands at 7.2332 per dollar. Last Wednesday, it strengthened to 7.2158 per dollar for the first time since November 13.
On Sunday, China’s State Council unveiled a “special action plan” to boost domestic consumption, featuring measures including increasing residents’ income and establishing a childcare subsidy scheme.
During the session, a string of China data showed the economy started the year on a firmer footing with retail sales picking up speed in the first two months.
(Reporting by Kevin BucklandEditing by Shri Navaratnam, Gareth Jones and Sharon Singleton)
