The euro rose today as traders turned their attention away from a crisis in Italy and a divisive G7 summit towards a European Central Bank policy meeting that could signal the beginning of the end of its vast economic stimulus.
Investors are raising their bets that the ECB will signal on Thursday a winding down of its vast bond-buying programme by the end of this year following a flurry of hawkish comments by officials last week.
Market optimism ahead of the ECB meeting was reinforced by assurances from Italy's new coalition government that it does not intend to leave the euro or issue securities to pay off companies owed money by the state.
Investors had viewed the latter - effectively a plan for a parallel currency in Italy - as a first step to exiting the euro.
The euro gained half a percent to stand at $1.1816, before losing some momentum as the dollar strengthened broadly.
The euro bounced despite heightened worries about a global trade war following a dispute at the Group of Seven summit in Canada that laid bare a rift between US President Donald Trump and other leaders over automobile tariffs and other issues.
Trumped lashed out at Canada and Europe over the US trade deficit after he arrived in Singapore, where he is due to hold a historic meeting with North Korean leader Kim Jong Un tomorrow.
Analysts said that the fairly muted reaction in currencies reflected the low expectations markets had for the G7 summit despite the fact that the euro is sensitive to the threat of US tariffs on cars.
Investors are ready for more volatility before a confluence of big events this week, including the Trump-Kim summit, policy reviews by the world's three major central banks, and a UK parliamentary Brexit bill vote.
Easing Italian political concerns and speculation the ECB will announce on June 14 when it will unwind its bond purchasing programme put the dollar under pressure last week as the euro bounced back from 10-month lows.
Before the ECB meeting, the US 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.