FOREX-Euro holds 4-month peak ahead of ECB policy decision

"U.S. trade policy remains the biggest uncertainty for the markets," said Kyle Rodda, senior financial markets analyst at Capital.com, but the exemption for auto tariffs "supported hopes that rational heads prevail in the White House and that, even if trade relations don't improve, at least they won't get any worse". The U.S. dollar index slipped to 104.09 for the first time since November 6.

The euro held at a four-month high against the U.S. dollar on Thursday, as optimism lingered around Germany's plan for a massive infrastructure fund and debt overhaul, ahead of the European Central Bank's policy announcement later in the day. The euro hit $1.0822 on Thursday for the first time since November 7. It was last little changed on the day.

The shared currency has gained 4.1% so far this week, set for its biggest weekly jump since March 2009. A quarter-point rate cut is widely expected from the ECB's policy decision later in the day. But the focus will be on the scope and pace of easing beyond that, and ECB President Christine Lagarde's comments about the sharp rally in government debt yields.

"German yields have rallied, but so have French yields and Italian yields and France and Italy have their sustainability issues," said Nick Rees, head of macro research at Monex Europe. "Now at some point, that story comes back to the fore and markets start to worry about euro zone fragmentation and that really puts a cap on the level to which euro/dollar can rise."

What Lagarde says about the ECB's "willingness to step in and intervene if this becomes a risk of blowing something up" will be crucial, Rees said. The dollar index wallowed at a four-month trough against a basket of major peers after U.S. President Donald Trump's administration gave a one-month reprieve on auto import levies to Canada and Mexico, again showing how rapidly the trade landscape can shift.

The U.S. currency eased slightly to C$1.4341 and was up 0.2% at 20.46 Mexican pesos. UNCERTAINTY AROUND U.S. TRADE POLICY

Risk-sensitive sterling and the Australian dollar benefited, with the British currency still at a four-month peak. "U.S. trade policy remains the biggest uncertainty for the markets," said Kyle Rodda, senior financial markets analyst at Capital.com, but the exemption for auto tariffs "supported hopes that rational heads prevail in the White House and that, even if trade relations don't improve, at least they won't get any worse".

The U.S. dollar index slipped to 104.09 for the first time since November 6. It was last down 0.1%. "The upshot is that a chunk of U.S. exceptionalism has faded in the rates space," DBS analysts wrote in a client note.

"We suspect that the divergence in fiscal stances between the U.S. - perceived austerity - and eurozone - aggressive spending - would be in play for the medium term." At the same time, "we cannot rule out profit-taking after three days of aggressive USD selling", the analysts said.

The dollar fell 0.7% to 147.86 yen. Japan's largest labour union group Rengo said on Thursday its member unions were seeking an average wage hike of 6.09% for this year. The U.S. currency edged up 0.1% to 7.2459 yuan in the official market, but that was after falling 0.7% over the previous two sessions.

Beijing began its week-long annual parliamentary meeting of the National People's Congress on Wednesday by signalling greater efforts to boost consumption to help protect economic growth at a time of heightened trade tensions with the United States. The Swedish Crown strengthened on the dollar and euro after Sweden's headline inflation surged, signalling an end to rate cut prospects in the near term.

The crown hit its highest since December 2022 at 10.936 per euro.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)