FOREX-Euro holds after pro-Europe parties retain majority in election

* Pro-EU parties fragmented, but still in majority
* Euro off 2-year low, sterling rises slightly
* Yen slips, Trump sees Japan trade deal after July vote
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Tommy Wilkes
LONDON, May 27 (Reuters) - The euro struggled to hold on to
$1.12 on Monday as investor relief at limited gains for
eurosceptic parties in European parliamentary elections was
offset by declines in the share of seats held by the biggest
blocs.
While centre-right and centre-left blocs lost their shared
majority, surges by the Greens and liberals meant parties
committed to strengthening the union held on to two-thirds of
seats, official projections showed. The single currency initially rallied to as high as $1.1215,
near its highest in 1-1/2 weeks, and off a two-year low of
$1.11055 touched on Thursday. But by 0820 GMT it was down 0.1%
at $1.1192 EUR=EBS .
"If anything, it was positive that the populists didn't gain
more than they did," said Christin Tuxen, an FX analyst at
Danske Bank. The reduced vote share for the biggest centrist
parties went "in the other direction", however.
The results dented the hopes of anti-immigration,
anti-Brussels National Rally led by Marine Le Pen, Italian
Deputy Prime Minister Matteo Salvini and others who have been
opposing attempts to forge closer EU integration.
Tuxen said the election, normally of limited interest to
global markets, was the first of a series of meaningful
political events in Europe this year, although monetary policy
still mattered more given signs of slowing economic momentum.
FX investors are focused on how the U.S. Federal Reserve
will react to a worsening economic outlook.
"What is really going on in the FX market, is we are waiting
to hear if there will be a Fed reaction to the deteriorating
cyclical outlook," Tuxen said, pointing to rising expectations
of a U.S. rate cut this year.
Trading was set to be subdued on Monday due to market
holidays in London and New York, limiting moves in other
currency pairs. The dollar index rose 0.1% to 97.706 .DXY .
The U.S. currency traded at 109.53 yen JPY= , up 0.2% and
underpinned by bargain-hunting by Japanese investors. The dollar
is not far from a three-month low of 109.02 touched two weeks
ago amid escalating tensions between Washington and Beijing over
trade and technology.
The dollar has been also capped against the yen as U.S.
President Donald Trump is seen putting pressure on Japan to take
measures to reduce its trade surplus with the United States.
Trump, who arrived in Tokyo on Saturday, tweeted on Sunday that
much of the trade negotiation would wait until after Japan's
election in July. The pound rose marginally to $1.2718 GBP=D3 , having
regained some ground from 4-1/2 month lows after Prime Minister
Theresa May set out a date for her departure. The prospect of a
"no-deal" Brexit is fast becoming the defining issue of the race
to succeed her. "Sentiment towards the pound is still negative," said
Marshall Gittler, an analyst at ACLS Global, citing option
market data that signalled people were buying insurance against
a further fall in the pound and positioning data showing a big
increase in short positions against it.