Euro steadies after European elections, dollar firm

By Richard Leong

NEW YORK (Reuters) - The euro edged higher on Monday after a short-lived sell-off tied to Italy's inconclusive weekend election, helped by the creation of a coalition government in Germany that eased political uncertainty there.

The dollar rose versus the yen as traders reduced their safe-haven holdings of the Japanese currency on easing fears about a trade war stemming from U.S. President Donald Trump's tariffs on imported steel and aluminum proposed last Thursday.

Italy's election, which pointed to prolonged political jitters after right-wing and eurosceptic parties did better than expected, was somewhat balanced by Germany's Social Democrats agreeing to join with Chancellor Angela Merkel's conservatives, ending a period of uncertainty in Europe's biggest economy.

Taken together, the election outcomes did not to alter investors' view on the strength of the euro zone economy, although the Italian results put political risks in the region back on the radar.

"All in all, they are neutral to slightly positive for the euro," said Nick Bennenbroek, head of currency strategy at Wells Fargo Securities in New York.

Bennenbroek and other analysts said traders will turn their focus to four major central bank meetings this week as well as the U.S. payrolls report due Friday.

The Reserve Bank of Australia will meet on Tuesday, while the Bank of Canada will hold a policy meeting on Wednesday. European Central Bank policymakers will convene on Thursday, while their counterparts at the Bank of Japan will meet on Friday.

The euro was last up 0.11 percent to $1.2330, erasing losses tied to the Italian election results.

The single currency rose to a two-week high at $1.2365 in Asian trading after the German results.

The euro was up 0.53 percent to 130.93 yen. It had fallen as much as 0.7 percent to 129.37 yen, its lowest since late August in early London trading.

LESS FEARS OVER U.S. TARIFFS

The dollar steadied after wobbling last week on Trump's proposed 25-percent and 10-percent levies on imported steel and aluminum.

The surprise announcement touched off threats of countermeasures from the European Union, Canada and other U.S. trade partners. Senior lawmakers from Trump's Republican Party urged Trump to reconsider imposing the tariffs.

The outcry against Trump's plan raised speculation whether it will be implemented at all.

"People are waiting to see how things play out. There are still a lot of uncertainties," said Chuck Tomes, senior trader at Manulife Asset Management in Boston.

The greenback strengthened 0.44 percent at 106.21 yen. It hit a 16-month low of 105.23 yen on Friday.

(Reporting by Richard Leong in New York and Saikat Chatterjee in London; Editing by Andrea Ricci and Chizu Nomiyama)

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