LONDON - The euro steadied on Monday after suffering its biggest weekly drop in nearly two months as risk appetite gradually returned to global markets after a week of turmoil.
With hopes of fiscal stimulus from Germany growing and steps by China over the weekend to cut corporate lending costs pushing up equities, growth-sensitive currencies such as the Australian dollar also edged higher.
However, investor optimism is likely to be capped before a speech by U.S. Federal Reserve Chairman Jerome Powell later this week at the Jackson Hole central bank conference.
Market strategists believe his comments will be aimed at reassuring nervous markets that the Fed will remain in an easing stance and set the stage for more rate cuts after a quarter percentage point rate cut in July.
"Powell's speech will set the stage for, at the minimum, a 25 basis points rate cut at the September meeting, stressing that quantitative tightening is over and stressing that the committee's bias is now back in accommodation mode," said Elsa Lignos, global head of FX strategy at RBC Capital Markets.
Money markets are pricing in a cumulative 67 basis points of rate cuts from the Fed by the end of the year.
Against the greenback, the euro was broadly flat at $1.1094 in early London trading after falling 1% last week, its biggest weekly drop since early July.
The dollar index, which measures the greenback against six major currencies, was marginally higher in Asia at 98.201, close to a two-week high of 98.339 reached on Friday.
Global markets went into a tailspin last week after bond yield curves inverted signaling the global economy was headed towards a recession, sending panicky investors to the relative safety of perceived safe-haven assets such as gold and yen.
Latest weekly positioning data showed hedge funds ramped up their holdings of the Japanese currency for a second consecutive week versus the greenback.
Against the yen, the dollar was little changed at 106.37 yen, near a one-week high of 106.98 yen.
(Reporting by Saikat Chatterjee; Editing by Toby Chopra) ((firstname.lastname@example.org; +44-20-7542-1713; Reuters Messaging: email@example.com))