June 11, 2018 / 5:54 AM / in 13 days

FOREX-Canadian dollar dips after G7 fracas, euro gains on ECB signals

* Traders see Trump’s G7 showdown as true to form, not a surprise

* Euro seen supported ahead of ECB meeting on Thursday

* Hope of a U.S.-North Korea deal underpins dollar/yen

By Hideyuki Sano

TOKYO, June 11 (Reuters) - The Canadian dollar fell modestly on Monday, after U.S. President Donald Trump disrupted the G7’s efforts to show a united front and bashed Canada’s leader as “very dishonest,” though market reaction was relatively muted.

The euro edged up as traders looked to the European Central Bank’s policy meeting on Thursday for when and how it would wind up its bond purchases and eventually lift interest rates from current deep negative levels.

The Group of Seven summit in Canada laid bare a deep rift between Trump and other leaders as the U.S. president, who left the G7 meeting early, tweeted he was backing out of the joint communique and lashed out against Canadian Prime Minister Justin Trudeau.

He continued to rap Canada and Europe after he arrived in Singapore, where he is due to hold a historical meeting with North Korean leader Kim Jong Un on Tuesday.

The Canadian dollar, which has been dogged by fears Trump may scrap the North American Free Trade Agreement (NAFTA), fell 0.3 percent to C$1.2960.

The Mexican peso lost 0.2 percent to 20.331 , not far from its 16-month low of 20.6505 touched on Friday.

Still, the reaction was moderate as Trump’s isolation has been widely anticipated following an equally tense meeting of G7 finance ministers a week before, traders say.

Many investors were also bracing for a confluence of big events this week, including the Trump-Kim summit and policy reviews by the world’s three major central banks.

The euro gained 0.25 percent to $1.1801, edging back up to a two-week high of $1.1840 touched on Thursday.

A flurry of comments from key ECB officials last week fuelled expectations that it will give clear indications on Thursday that its stimulus will be ended by the end of the year.

“I have to wonder why suddenly ECB officials made such comments last week. I would suspect those who have shorted the euro will continue to cover their short positions ahead of the meeting,” said Koichi Takamatsu, head of forex at Nomura Securities.

Ahead of the ECB, the U.S. Federal Reserve is almost unanimously expected to raise interest rates for the second time this year on Wednesday.

The market’s focus will be on the Fed’s projection on the path of future interest rates.

“I would think a forecast of four rate hikes this year would be already priced in. But if the Fed suggests faster rate hikes in 2019 than previously anticipated, that could destabilise the market,” said Ayako Sera, market economist at Sumitomo Mitsui Trust Bank.

The Bank of Japan is expected to stick to the current super-easy policy after a two-day meeting that ends on Friday, which would keep the yen’s gains in check.

The yen dipped 0.2 percent to 109.77 per dollar, reversing earlier rises to 109.23, ahead of Trump’s meeting with North Korea’s Kim.

“They have telegraphed that there could be a series of talks. So I wouldn’t expect agreement on denuclearisation and an end to sanctions,” said Kazushige Kaida, manager of forex at State Street Bank in Tokyo.

“But they could officially declare the Korean War has ended. While that may not change much on the ground, markets could take it positively,” he said. (Editing by Jacqueline Wong and Richard Borsuk)

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