Euro nears one-year high against dollar as US economy faces risks

The euro remains close to a one-year high versus the dollar, as Europe’s economy continues to outperform the US amid concerns about banking contagion risks, the debt ceiling standoff and a potential recession. Meanwhile, the Aussie struggled to stay above the key 66 cent mark, while the yen was in a holding pattern as the Bank of Japan began a two-day policy meeting, the first under new governor Kazuo Ueda. The dollar index was little changed at 101.36, following a 0.42% slide the previous day, when it touched a near two-week low of 101.00. Germany again revised up growth forecasts on Wednesday, and a survey showed a continued pickup in consumer confidence. By contrast, U.S. capital goods spending fell more than expected in the latest data overnight, adding to jitters about a downturn. 

“The resilient euro zone economy alongside underlying inflation that is still going up and not down can see the ECB (European Central Bank) maintain their hawkish stance, supporting EUR,” Kristina Clifton, senior currency strategist at Commonwealth Bank of Australia, wrote in a client note. At the same time, US inflation is showing a stubborn disconnect with growth, keeping pressure on the Federal Open Market Committee to tighten policy further, Clifton said. “The risk of more than one hike to the (Fed) Funds rate is an upside risk to the USD in coming months.” 

Traders currently lay 77% odds on another quarter-point hike on May 3, but that is seen as the likely peak, with as many as two quarter-point cuts priced in for the end of the year. IG analyst Tony Sycamore also sees risks skewed to the downside for the euro against the dollar. As long as the pair is below monthly resistance at 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 133.68 yen. The market consensus is that Ueda will leave ultra-easy policy settings unchanged on Friday, but no one is willing to rule out another surprise like the shock doubling of the 10-year bond yield band in December. 

Aussie dollar traders are more confident that the Reserve Bank of Australia will keep rates unchanged for a second meeting next week after some softness in consumer inflation data on Wednesday. The currency rose 0.11% to $0.66115 on Thursday, after dipping to a 1 1/2-month low of $0.6592 in the previous session. 

New Zealand’s kiwi dollar rallied 0.43% to $0.61415, clawing back the previous session’s losses after ANZ Bank’s business confidence survey showed some improvement among retail and agricultural respondents, although the headline reading was largely unchanged. Sterling was flat at $1.2474, retaining Wednesday’s 0.48% advance. 

Bitcoin firmed to around $29,110, following a day when it jumped as high as $30,022, only to then slide as low as $27,242. IG’s Sycamore says the initial strength was driven by US banking concerns, but the market was then “apparently spooked by a large sell order.” Provided bitcoin can keep above $25,000 though, Sycamore expects the token to test this month’s high at $31,035.