Euro on backfoot after report of dovish ECB views; China data awaited

© Reuters. FILE PHOTO: U.S. dollar and Euro banknotes are seen in this picture illustration

By Shinichi Saoshiro

TOKYO (Reuters) – The euro sagged early on Wednesday following a report that some European Central Bank policymakers have expressed dovish views, with the market awaiting Chinese economic data for further cues.

The euro was little changed at $1.1284 after slipping about 0.2 percent overnight to pull away from a 2-1/2-week high of $1.1324 scaled on April 12.

The single currency came under pressure after Reuters quoted four sources with direct knowledge of discussions that several European Central Bank policymakers think the ECB’s economic projections are too optimistic as economic weakness in China and trade tensions linger.

“It remains to be seen whether the ECB policymakers wanted to check the euro’s recent advance. But the macro environment is not conducive for the euro to keep appreciating when the euro zone economy still remains shaky,” said Shin Kadota, senior strategist at Barclays (LON:) in Tokyo.

The against a basket of six major currencies was steady at 97.073 after gaining 0.1 percent overnight thanks to the flagging euro.

A bounce in long-term U.S. Treasury yields to a four-week high in the wake of equity gains on Wall Street also supported the greenback.

The market’s immediate focus was on a batch of Chinese data due at 0200 GMT, for a glimpse of how the world’s second largest economy performed in the first quarter.

Economic growth is expected to have slowed to its weakest pace in at least 27 years in the first quarter, as policymakers seek to head off a sharper slowdown that could stoke job losses.

The New Zealand dollar was down 0.8 percent at $0.6706 after falling to $0.6668, its lowest since Jan. 3.

The was hit after data showed New Zealand’s annual inflation slowed in the first quarter and raised odds of an interest rate cut in the coming months.

The Australian dollar was down 0.15 percent at $0.7166. The antipodean currency is sensitive to the economic fortunes of China, Australia’s major trading partner.

“Chinese data will definitely impact the Australian dollar. But we have to remember that the currency also has key domestic factors to contend with recently,” Kadota at Barclays said.

The took a brief hit on Tuesday after the Reserve Bank of Australia said it believes a cut in interest rates would be “appropriate” should inflation stay low and unemployment trend higher.

The dollar moved out of its recent range and popped up to 112.17 yen, its highest since Dec. 20, following the bounce in U.S. yields.

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