* Japan, Europe central bank meetings in focus this week
* Positioning data shows increased dollar bearish bets
* Graphic: World FX rates in 2017 http://tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, Jan 22 (Reuters) - The euro rose a third of a
percent on Monday on expectations the European Central Bank will
maintain its current monetary policy at a meeting this week and
not signal a dovish tilt.
Dollar weakness, exacerbated by a U.S. government shutdown
and strengthening economic growth in Europe, also encouraged
large investors to boost their expectations on the euro with UBS
Wealth Management upgrading its short-term forecast for the
"If it was not for the interest rate differentials, the euro
would be much higher against the dollar as the underlying
fundamentals such as current account balances have improved
significantly in recent months," said Thomas Flury, head of
currency strategy at UBS Wealth Management's Chief Investment
In a report published on Monday, the unit upgraded the euro
forecast against the dollar to $1.25 over the next
three months from a previous forecast of $1.18.
The single currency was up 0.3 percent to $1.2259
in early trades, nearing a three-year high of $1.2323 that it
reached last Wednesday.
It is up more than 2 percent this year after gaining more
than 10 percent against the dollar last year.
Investors were also focused on policy decisions in Japan and
Europe. Japan is unlikely to signal any policy shift when its
meeting ends on Tuesday; the ECB which may stick to its dovish
policy stance and is unlikely to offer any hint of a change in
Some analysts advise caution in betting on any quick
withdrawal of ECB policy stimulus on Thursday as broad measures
of inflation remain well below its targets.
"Unless the U.S. government shutdown ends very quickly,
which may boost the dollar, markets are focusing on the two
other cross currents this week, namely the BOJ and the ECB, with
the latter likely to surprise euro bulls," said Alvin Tan, a
currency strategist at Societe Generale in London.
Recent data and political developments, especially in
Germany, have bolstered the euro, with business sentiment
optimistic and capital spending picking up.
Meanwhile, latest positioning data showed dollar bears
extended bets against the greenback last week as the political
wrangling dented investor confidence.
The U.S. government shutdown took effect at midnight on
Friday after Democrats and Republicans failed to agree on a
last-minute deal to fund government operations. A
vote on Sunday to provide funding through Feb. 8 was cancelled
and will be held at 12 p.m. (1700 GMT) on Monday.
The dollar's index against a basket of six other major
currencies initially dipped to 90.155 but was last up 0.1
percent at 90.665, managing to hold above the three-year
low of 90.113 set on Thursday.
Sterling steadied around $1.39 on Monday, with
traders cautious about pushing the pound higher after five
consecutive weeks of gains against the dollar, its longest
winning streak since 2014.
For Reuters Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Reporting by Saikat Chatterjee, editing by Larr King)
First Published: 2018-01-22 02:19:07
Updated 2018-01-22 13:41:16
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