×

FOREX-Euro bounces after Merkel calls it "too weak"

(Adds more details on Merkel, analyst comment)

* Euro hits 6-1/2 month high on Merkel comments

* Dollar wallows near 6-month lows

* Euro net long positioning rises to highest in over 3 yrs -IMM

* Graphic: World FX rates in 2017 http://tmsnrt.rs/2egbfVh

LONDON, May 22 (Reuters) - The euro hit a more than six-month high against the dollar on Monday after Germany's Angela Merkel prefaced a summit of G7 leaders later this week by saying a "too weak" currency was behind her country's massive trade surplus.

Speaking to students at a secondary school in Berlin, Merkel said that Germany's huge export earnings were propelled by two factors over which the government had no influence, namely the euro's exchange rate and the oil price.

Germany has repeatedly pushed back against U.S. criticism of its trade surplus, saying nobody could blame Berlin for the competitiveness of its products.

But the comments spurred speculation there may be more pressure on the issue from Washington at this week's meetings and that German officials could push harder for a tightening of the European Central Bank's rhetoric and stance on interest rates this year.

Merkel said: "The euro is too weak ... due to the ECB's policy and with this, German goods are comparatively cheap."

That helped the euro bounce by about half a cent from the day's lows around $1.1160. By 1409 GMT, it was trading at $1.1245, up 0.3 percent on the day.

"It did have an impact on the euro (but) one does have to bear in mind that she did state the obvious," Credit Agricole strategist Manuel Oliveri said.

"The ECB's monetary policy stance is targeting the euro zone as a whole, so it's no surprise that Germany is in a better position as compared to other euro nations. From that point of view her comments should not ... have a sustainable currency impact."

Earlier trade in Europe had seen the dollar recover from its worst week in more than a year against the basket of currencies used to measure its broader strength.

The greenback has sunk since President Donald Trump's firing of FBI Director James Comey sparked uproar in Washington and a shortening of the odds on betting markets that he would not see out the term begun in January.

POLITICAL DRAMA

Trump's departure on a trip to the Middle East seemed to have cooled the temperature briefly on the political drama in Washington, which investors more prosaically fear will derail his efforts to deliver tax reform and fiscal stimulus, if not his presidency.

But the rise in political tension has coincided with a worse run of U.S. data that has undermined market expectations of further interest rate rises - or at least the scale of them - this year, weakening the greenback's relative appeal.

St. Louis Fed President James Bullard said on Friday that the U.S. central bank's expected plans for rate increases may be too fast for an economy that has shown recent signs of weakness.

The dollar index, which tracks the greenback against a basket of six major rivals, fell 0.1 percent on the day after Merkel's comments to trade at 97.011, its lowest since Nov. 9.

"The dollar will certainly be hoping for more poise and less noise from Trump this week," strategists from Dutch bank ING said in a note.

"But weighing up impeachment speculation, geopolitical risks and limited upside catalysts from the budget and Fed minutes its hard not to see the dollar staying on the back foot, while trying to recoup some of its recent losses."

Net long positioning on the euro rose to its highest in more than three years in the week ended May 16, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.bi z / c m s / ? p a g e I d = l i v e m a r k e t s (Editing by Alison Williams)