(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
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Ritvik Carvalho and Patrick Graham
LONDON, May 22 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
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
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.
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
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
"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 –
it’s 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.biz/cms/?pageId=livemarkets
(Editing by Alison Williams)