Analysis

Dollar, euro stay in narrow ranges ahead of Trump-Juncker talks

The dollar and euro barely moved on Wednesday, ahead of a meeting between U.S. President Donald Trump and European Commission President Jean-Claude Juncker at a time investors are focused on the trade rift between the two economic powers.

The dollar index against a basket of major currencies (DXY) stood little changed at 94.651, off its two-week low of 94.207 hit on Monday.

Fears of a trade war with the United States kept the euro trapped in narrow ranges as Juncker travels to Washington on Wednesday for trade-focused talks with Trump.

The talks come after the U.S. imposed tariffs on European Union steel and aluminum and Trump's threats to extend those measures to EU-made cars.

"If there is a further escalation of the trade issue, that could potentially hurt the risk sentiment and put pressures on the dollar/yen," said Shinichiro Kadota, senior FX & rates strategist at Barclays (LON:BARC).

The single currency (EUR=) was trading nearly flat at $1.1678.

Investors were also eyeing a European Central Bank (ECB) policy meeting on Thursday for direction.

The ECB guided markets for steady rates "through the summer" of 2019 at a meeting last month, when it also announced it would shut its signatory bond-purchasing program in December.

Against the yen, the dollar was 0.1 percent higher at 111.32 yen per dollar .

The yen found some support early this week on expectations the Bank of Japan might be a step closer to scaling back some of its aggressive monetary stimulus.

Risk appetites remained mostly firm, supported by strong U.S. corporate earnings and hopes that China will boost fiscal support for its economy.

The offshore yuan weakened 0.1 percent to 6.8145 per dollar.

The Australian dollar slumped after data on Wednesday showed inflation remained stubbornly low last quarter despite fairly robust economic growth. It traded 0.3 percent lower at $0.7398.

Kazushige Kaida, head of foreign exchange at State Street Bank in Tokyo, said the market is waiting to see how Beijing would react if the United States moves to put tariffs on all $500 billion of its imports from China.

In a CNBC interview broadcast on Friday, Trump said the U.S. was "down a tremendous amount" and he was "ready to go to 500".

Kaida said Trump "has tried to pick a fight by making various comments about foreign exchange markets. But China has not responded to that in any way."

"It will be a plus for risk sentiment if the United States turns out to be mainly looking for a confrontation with China in its trade war, and not so much with the euro zone and Japan," he added.

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