Euro struggles on weak data; Aussie buoyed by U.S.-China talks

LONDON (Reuters) – The euro struggled to hold on to earlier gains on Wednesday as more weak economic data offset optimism over U.S.-China trade negotiations.

Disappointing trade data out of Germany and a fall in consumer confidence in France contrasted with a more upbeat mood across markets.

News that Beijing and Washington had extended trade talks in Beijing for an unscheduled third day on Wednesday boosted oil prices and broader sentiment. Expectations of more easing in China helped the mood, with Asian and European shares rallying.

Adam Cole, chief currencies strategist at RBC, said those factors were giving a “better tone for risk this morning. It’s all about a general risk-on mood.”

But the euro did not benefit, falling back to $1.1451 after earlier rising as high as $1.1479 EUR=.

Wednesday’s weak data in the region, which followed numbers on Tuesday showing an unexpected fall in German industrial output for the third straight month, underscored concern about a slowdown and the European Central Bank’s caution as it tries to wean the region off stimulus.

The dollar index .DXY traded down 0.1 percent at 95.847 .DXY.

The bigger moves were in commodity-linked currencies, buoyed by the recovery in oil and hopes for progress in the U.S.-China trade talks.

The Australian dollar, considered a barometer of sentiment toward China, rose 0.4 percent to $0.7166 AUD=. The Aussie has now risen off near-decade lows below $0.68 reached earlier this month.

The Chinese yuan gained 0.3 percent to 6.8357 CNH= in offshore markets. The Canadian dollar also rose 0.3 percent to C$1.3240.

The Norwegian crown NOK= was briefly up more than a quarter of a percent. The New Zealand dollar gained 0.8 percent to $0.6774 NZD=.

The rally in riskier assets has accelerated since last Friday when Federal Reserve Chairman Jerome Powell said he was aware of risks to the economy and would be patient and flexible in policy decisions this year.

That eased concern the Fed would be raising rates as the U.S. economy weakened.

“The FOMC (Federal Open Market Committee) minutes today, and Jay Powell’s speech tomorrow, will give us an update of Fed thinking and of how much the other FOMC members are in agreement with the Chairman. If the message is still one of willingness to pause, and sensitivity to markets, the dollar won’t get any help,” said Kit Juckes, Societe Generale’s currency strategist.

Against the yen JPY=, the dollar gained 0.2 percent to 108.905. The Japanese currency continued to weaken after a surge higher last week triggered by investors shifting into the perceived safety of the yen.

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