Euro nears one-year high as US economic risks weigh on the dollar

Natalie Portman
By Natalie Portman 4 Min Read
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By Kevin Buckland

TOKYO (RockedBuzz via Reuters) – The euro approached a one-year high against the dollar on Thursday as the resilient European economy contrasted with risks of banking contagion in the United States, a debt ceiling deadlock and a potential recession.

The risk-sensitive Aussie struggled to stay above the key 66-cent handle, while major cryptocurrency bitcoin found its foothold around $29,400 after the previous session’s wild swings.

The yen was in a tight pattern as the Bank of Japan began a two-day policy meeting, the first under new governor Kazuo Ueda.

The single European currency rose 0.05% to $1.10415, returning towards an overnight high of $1.1096, the highest since April last year.

The dollar index – which measures the greenback against six major peers, with the euro the heaviest weight – was revised slightly to 101.41, after falling 0.42% on Wednesday when it hit a low of nearly two weeks of 101.00.

Germany revised its growth forecast upwards again on Wednesday and a survey showed a continued recovery in consumer confidence.

By contrast, US capital equipment spending fell more-than-expected in the latest overnight data, adding to jitters about a recession. The mood was not helped by the continued collapse of the First Republic Bank, or ongoing wrangling over an extension of the US debt ceiling.

“The resilience of the eurozone economy coupled with underlying inflation continuing to rise and not fall may see the ECB maintain its aggressive stance, supporting the EUR,” Kristina Clifton, senior currency strategist at Commonwealth Bank of Australia.

At the same time, US inflation is showing a stubborn detachment from growth, keeping pressure on the Federal Open Market Committee to tighten policy further, Clifton said.

“The risk of more than one fund rate hike (Fed) is an upside risk to the USD in the coming months.”

Traders are currently targeting 80% for another quarter-point hike on May 3, but this is seen as the likely peak, with as many as two quarter-point cuts expected later this year.

IG analyst Tony Sycamore also sees skewed downside risks to the euro versus the dollar. As long as the pair stays below monthly resistance around 1.1075, “EUR/USD remains vulnerable to a pullback to 1.0800,” he wrote in a report.

Meanwhile, the dollar was little changed at 133.63 yen. The market consensus is that Ueda will leave ultra-easy policy settings unchanged on Friday, but nobody is willing to rule out another surprise like the shock doubling of the 10-year yield range in December.

Australian dollar traders are more confident that the Reserve Bank of Australia will keep rates unchanged for a second meeting next week after some weakness in consumer inflation data on Wednesday.

The currency was flat at $0.6603 on Thursday, after falling to a 1.5-month low of $0.6592 in the previous session.

Bitcoin stabilized at around $29,060, after a day of jumping as high as $30,022, only to drop as low as $27,242.

IG’s Sycamore says initial strength was driven by US banking concerns, but the market was “apparently spooked by a large sell order.”

Provided bitcoin can stay above $25,000, Sycamore expects the token to hit this month’s high at $31,035.

(Reporting by Kevin Buckland; Editing by Sam Holmes)

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