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Dollar holds near 3-month highs against euro on core US inflation


Dollar holds near 3-month highs against euro on core US inflation
Image Credit: Pixabay

The dollar held near 3-month highs against the euro on Thursday, benefiting from sustained strength in core U.S. inflation and weak data out of Europe.

Although headline U.S. inflation growth logged its weakest pace in 1-1/2-years in January, traders focused on the core price gauge, which was up for the third straight month and gave the dollar some impetus. The greenback was hit earlier this year from a shift to a cautious stance by the Federal Reserve. The latest data suggested the central bank will need to stay vigilant on pricing pressures even as it adjusts policy imperatives in the face of heightened risks to growth.

"The trend in core US inflation remains steady, against some concerns of a potential decline..indeed at 2.2 percent YoY, the current reading is up from the 1.8 percent reading a year ago. Overall the data suggest that we cannot rule out a resumption of Fed rate hikes later in the year," said Rodrigo Catril, senior currency strategist at NAB . The dollar index, a gauge of its value versus six major peers, was marginally higher at 97.20, having gained 0.5 percent in the previous session. The index has rallied 1.7 percent so far this month, after two consecutive months of losses.

That contrasted with the wobbles in the euro. The single currency, which has around a 58 percent weighting in the dollar index, has tumbled 1.63 percent this month on the back of weaker-than-expected economic data out of the euro zone and expectations the European Central Bank will remain highly accommodative this year. Political uncertainty in Spain, the common area's fourth largest economy, has further hampered the euro.

Spain's parliament rejected a draft 2019 budget on Wednesday after Catalan separatists turned their back on the government, pushing the country close to an early national election amid an increasingly fragmented political landscape. Broad risk appetite in financial markets has been on the uptick in the past couple of days on rising expectations of a breakthrough in the trade impasse between United States and China. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer are in Beijing for high level talks. U.S. President Donald Trump said on Wednesday the talks with China were "going along very well" as they try to resolve the tariff dispute ahead of a March 1 deadline.

Elsewhere, the yen was steady at 110.95. The dollar has gained on its Japanese rival in recent weeks, up 1.9 percent so far in February. Analysts believe that Japanese demand for foreign bonds is one factor leading to weakness in the yen. The New Zealand dollar remained well bid, up 0.15 percent at $0.6805, having rallied hard the previous day after the nation's central bank adopted a less dovish line on policy than many of its global counterparts. The Aussie dollar, often considered a barometer for global risk appetite, was flat at $0.7087, after gaining around 0.5 percent in the previous session led by optimism on the China-U.S. trade talks.

(With inputs from agencies.)

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