Euro edges off lows as dollar rally takes a pause

LONDON (Reuters) - The euro clawed itself off recent lows on Monday as the dollar paused near 18-month highs and traders waited to see whether the U.S. Federal Reserve’s policy meeting this week would calm nerves about slowing global economic growth.

In a quiet start to European trading, most currencies were little moved ahead of key policy events this week in the United States and China.

Last week the dollar enjoyed its best weekly performance since September while the euro tumbled after the European Central Bank cut its inflation and growth forecasts and struck a cautious tone about the outlook for the world economy.

Analysts at Goldman Sachs said the ECB’s assessment that the balance of risks was moving to the downside, combined with signs that protests in France are beginning to weigh on business, meant that euro appreciation was still a few months away.

“We continue to expect that euro/dollar will remain range bound but euro will underperform on crosses in the near term,” they wrote in a note to clients.

The Federal Reserve begins its two-day policy meeting on Tuesday and is expected to hike rates for a fourth time in 2018.

But all eyes will be on signals about the pace of further tightening next year and the Fed’s sense of how the economy is holding up amid a U.S.-China trade conflict and global financial market volatility.

On Monday, the euro nudged up 0.1 percent to $1.1316 after last week hitting as low as $1.1270.

The dollar index, which measures the greenback against a basket of currencies, slipped 0.1 percent to 97.394, close to the 19-month high of 97.711 touched last week.

Weaker-than-expected economic data from China and Europe last week sent investors towards the perceived safety of the dollar and the Japanese yen.

“The dollar is clearly showing it is attractive during times of market stress,” said Ray Attrill, head of currency strategy at NAB in Sydney.

Stephen Gallo, an analyst at BMO Capital Markets, noted that leveraged funds had cut their net long positions in the dollar by $4.4 billion last week to $23.3 billion, their smallest net long dollar position in 12 weeks according to CFTC data, but the U.S. currency had still rallied last week in “a bullish signal”.

The Australian dollar, whose fortunes are closely tied to China’s economy, was marginally down at $0.7173.

The Aussie had shed 0.3 percent of its value last week on weak Chinese data.

Investors are now looking to a major speech by President Xi Jinping on Tuesday to mark the 40th anniversary of China’s market reforms and opening up. China is also expected to hold its annual Central Economic Work Conference this week.

The offshore Chinese yuan, which has fallen significantly in 2018, rose 0.1 percent to 6.900.

The yen was unchanged at 113.39 yen per dollar.

Other foreign exchange markets were also quiet, with the British pound flat at $1.2591 as investors waited for the next Brexit-related developments.