LONDON — The euro rose on Monday, but its value was vulnerable to political and fiscal uncertainty in the eurozone and growing unease among some European leaders worried about the currency’s recent gains.
The Group of Seven nations were considering issuing a statement this week that reaffirmed their commitment to "market-determined" exchange rates in response to heating rhetoric about a currency war, two Group of 20 (G-20) officials said on Monday.
Some analysts said the euro could edge lower before a meeting of eurozone finance ministers later on Monday and a G-20 meeting later in the week, given tensions over whether some countries are deliberately trying to weaken their currencies to improve export competitiveness.
French Finance Minister Pierre Moscovici said on Monday that eurozone countries needed closer co-operation on exchange rate policy and the bloc’s finance ministers would discuss the issue when they meet. He denounced the "aggressive" currency-management policies of some countries.
"Exchange rates can’t be subject to moods or speculation," Mr Moscovici said before the meeting of eurozone finance ministers in Brussels on Monday.
"I’m pleading for a co-ordinated approach at the international level which enables exchange-rate stability, and also that these exchange rates reflect the fundamentals of our economies."
The euro recovered from a session low of $1.3358 on Monday, which was close to a two-week low, at around $1.3385.
Morgan Stanley strategists said the euro could pull back towards $1.3260, its 50-day moving average. Against the yen, the euro rose 1% to ¥125.39, pulling away from Friday’s one-week low of ¥123.43, but still some way off the 34-month high of ¥127.71 hit last Wednesday.
"While the speed of the euro recovery was probably overdone, this correction down is also likely running out of steam," said Ulrich Leuchtmann, head of foreign exchange research at Commerzbank. "There are, however, risks with the Italian elections (and) Cyprus and we could see some pullback " with the finance ministers’ meeting.
Concerns about the terms of a bail-out for Cyprus, which will be high on the finance ministers’ agenda, would cap the euro’s gains, analysts said.
The euro sold off last week after European Central Bank president Mario Draghi kept alive expectations of rate cuts and said the bank would monitor the economic impact of the strengthening currency.
The euro had gained about 5.5% against the dollar since the beginning of last month to its peak of $1.3711 on February 1. Since then. it has shed about 2.5%.
Much of Asia was shut for the lunar new year holidays, keeping volumes on the lower side.
Canadian Finance Minister Jim Flaherty said last month that he had spoken to his Japanese counterpart, Taro Aso, to signal his concern. German Chancellor Angela Merkel said on January 24 that she could not " say I’m completely free of worry when I look at Japan right now".
Russia, the G-20 chair this year, has also warned against the potential for reciprocal action to drive down exchange rates.
