Euro edges higher from one-month lows; outlook cloudy

The euro edged higher from a one-month low hit last week as investors squared positions before a European Central Bank meeting this week where policymakers may strike a cautious note on the region's growth outlook.

Traders cut their long euro positions by their biggest margin in nine months last week, according to weekly positioning data, as core European bond yields entered negative territory and PMI data indicated the euro zone economy was struggling to gain traction.

But the big drop in hedge fund positions in the euro last week has had very little impact as the euro has traded in a tiny range versus the dollar, with some market analysts saying longer-term institutional flows, especially from overseas investors buying peripheral debt in Europe, may be supporting the currency.

“The euro selling seems to have intensified last week but the currency still is trading in a narrow range probably because of support from other kinds of investors,” said Manuel Oliveri, a currency strategist at Credit Agricole in London.

While the single currency rose 0.2 percent at $1.1242 on Monday, it remained within striking distance of a one-month low of $1.1183 hit last week. It has fallen more than two percent in nearly three weeks.

“We are seeing more euro scepticism in the market as expectations of an ECB rate hike has changed from the foreseeable future, with no firm timeline in sight,” said Ulrich Leuchtmann, a currency strategist at Commerzbank in London.

No policy changes are expected at this week's ECB meeting, but the press conference afterwards will be in sharp focus amid talk of tiered rates to ease pressure on banks, global recession fears and a sense of alarm that pushed 10-year German bond yields below zero percent for the first time since 2016.

Risk appetite was broadly muted across the currency markets with the yen stronger and the Australian dollar weaker as concerns about the outlook for the global economy weighed on sentiment.

The dollar was also weighed down by softening bond yields. The greenback was 0.3 percent lower at 111.385 yen after briefly popping up to a three-week high of 111.825 on Friday following the U.S. jobs report.

The Australian dollar dipped 0.1 percent to $0.7095 in the wake of declining prices of commodities such as copper.

The pound held near a one-week low as France and the Netherlands expressed doubt about May's plan to further delay Brexit. Sterling last traded at $1.3050 for a gain of 0.1 percent.

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