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Comments by ECB policymaker Francois Villeroy de Galhau that the
euro's weakness could threaten the European Central Bank's
efforts to steer inflation towards its target pulled the euro
from lows but sentiment was downbeat.
China's retail and factory activity fell sharply in April as
extensive COVID-19 lockdowns confined workers and consumers to
their homes.. The offshore Chinese yuan held near a September
2020 low of 6.8380 yuan hit last week.
"Increasingly, the risk is that zero-COVID (policy in China) may
stay in place even past the party conference in the third
quarter and into the winter season," Barclays strategists said
in a note downgrading its forecasts for the euro and the yuan
for the rest of 2022.
"As such, it may lead to persistent mobility restrictions, as
Omicron is notoriously difficult to contain."
Moves were sharper in the Australian dollar, which fell 0.68%,
which is most exposed to the Chinese economy. It trimmed losses
but was down 0.5% in London trading.
The dollar index was at 104.57, having briefly crossed the 105
level on Friday, its highest since December 2002, after six
successive weeks of gains. Weekly positioning data showed
investors built their long dollar bets.
The euro was marginally higher at $1.0422, but not far from a
low of $1.0354 it hit on Thursday, its lowest since early 2017.
Analysts see $1.0340 as a crucial level of support for the euro.
HSBC strategists expect the euro to fall to parity against the
dollar in the coming year. "Much weaker growth and much higher
inflation leave the ECB facing one of the toughest policy
challenges in G10 (central banks)," they said.
Crypto markets, which trade around the clock, had a quiet
weekend after turmoil last week driven by TerraUSD, a so-called
stablecoin, which broke its dollar peg though it retraced its
gains in early trading on Monday
Bitcoin was trading at around $29,500, down more than 5%, having
dropped to $25,400 on Thursday, its lowest since December 2020.
(Reporting by Saikat Chatterjee; additional reporting by Alun
John in Hong Kong; Editing by Susan Fenton and Barbara Lewis)
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