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Euro dips on election concerns, trade tensions support dollar

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05/16/2019 | 02:02pm EDT
U.S. dollar and Euro notes are seen in this picture illustration

NEW YORK (Reuters) - The euro dropped to its lowest level in more than a week against the dollar on Thursday on concerns about next week's European parliamentary elections, while the dollar was buoyed by ongoing U.S.-China trade tensions.

The euro has been hurt in recent days by Italian Deputy Prime Minister Matteo Salvini's comments that European Union rules harm the country.

Salvini said on Thursday that he would "tear apart" rules that are "strangling" Italy if his party scores well in a European parliamentary election later this month.

"Italy remains one of the factors keeping euro downside risks high," said Credit Agricole FX strategist Manuel Olivieri.

The dollar has benefited as a safe-haven currency even as the United States and China remain locked in a trade dispute.

The euro was boosted on Wednesday by reports that U.S. President Donald Trump is expected to delay a decision on imposing tariffs on imported cars and parts by up to six months, avoiding opening yet another front in his global trade battles.

Until a delay is official, however, investors remain nervous about a new trade war and how it may affect the global economy.

"The major theme is, is there enough room to fight multiple trade wars at once?" said Mark McCormick, North American head of FX strategy at TD Securities in Toronto.

"We had some green shoots of global economic stabilization the last five months and now I think the concern is whether or not renewed trade wars will sap some of that confidence and whether or not that, along with some of the slowdown we're seeing in the U.S. economy, will tip the global economy back into a less stable state," McCormick said.

The Chinese yuan weakened as far as 6.9299 against the dollar on Thursday, its weakest level since Nov. 30.

The greenback was also bolstered on Thursday by data that showed U.S. homebuilding increased more than expected in April, while a Philadelphia Fed index of business conditions gained in May.

The Australian dollar weakened to its lowest level since Jan. 3 after data showed that the country's unemployment rate rose to its highest in eight months, cementing views its central bank may be forced to lower borrowing costs soon to stimulate the economy.

Sterling dropped to the lowest level since Feb. 15 as Britain's Prime Minister Theresa May battled to keep her Brexit deal, and her premiership, intact amid growing fears of a disorderly departure from the EU.

(Additional reporting by Abhinav Ramnarayan in London; editing by Jonathan Oatis and Richard Chang)

By Karen Brettell

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