BREXIT: Dollar Maintain Gains Against Euro

As the United Kingdom (U.K.) and Europe battles with BREXIT, the dollar maintain three-month highs versus the euro on Thursday. This is supported by sustained strength in core U.S. inflation and weaker-than-expected data out of Europe.

While headline United States (U.S.) inflation is at its weakest pace year on year for the past two years this January, traders focussed on the core price gauge, which stayed up for the third straight month, giving the dollar some impetus.

The euro is trading below the psychologically important 1.13 dollar level at 1.1283 dollar.

Earlier in the session, it hit an intra-day low of 1.1245 dollar.

The greenback was hit earlier this year by the Federal Reserve’s shift to a cautious policy stance.

However, the latest data suggests the central bank will need to stay vigilant on pricing pressures even as it adjusts to heightened growth risks.

The Australian dollar, which is often considered a barometer for global risk appetite, is up 0.3 per cent at 0.7110 dollar, having gained about 0.5 per cent in the previous session on optimism about the China-U.S. trade talks.

The Aussie strengthened has been buoyed by stronger-than-expected economic data out of China which is Australia’s largest trade partner.

China’s January dollar-denominated exports rose 9.1 per cent from a year earlier, while imports dropped 1.5 per cent, both beating analysts’ expectations, official data showed on Thursday.

The dollar index, a gauge of its value versus six major peers, was marginally higher at 97.20, having gained 0.5 per cent in the previous session.

The index has rallied 1.7 per cent 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 per cent weighting in the dollar index, has tumbled 1.63 per cent 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.

Euro zone industrial production fell more than expected in December, official estimates showed on Wednesday, pulled down by a drop in the output of capital goods, used for investment.

Political uncertainty in Spain, the currency bloc’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.

U.S. tariffs on 200 billion dollars worth of imports from China are scheduled to rise to 25 per cent from 10 per cent if the two sides don’t reach a deal by the deadline, increasing pressure and costs in sectors from consumer electronics to agriculture.

Elsewhere, the yen was steady at 110.99. The dollar has gained against its Japanese rival in recent weeks, up 1.9 per cent 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 rose by 0.3 per cent to 0.6820 dollar, 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. 

- Reuters