Euro hovers near one-year high as U.S. outlook clouds over

The euro hovered near a one-year high against the dollar on Thursday, as Europe’s resilient economy contrasted with banking risks and another debt ceiling standoff in the United States.

It was last up 0.05% against the dollar at $1.104, not far off yesterday’s one-year peak of $1.1096.

{{2126|The dodollar index – which measures the greenback against six major peers – was flat at 101.4. That followed a 0.39% slide the previous day.

Britain’s pound and Japan’s yen were little changed.

“We’re looking for potentially a bit more of a challenging environment for the U.S. dollar, which people have already started to position for,” said Carl Hammer, chief strategist at European lender SEB.

“We have the debt ceiling coming up and U.S. inflation moderating a few months before the euro zone.”

The greenback has fallen more than 11% since hitting a 20-year high in September. Analysts say it has been driven by a drop in U.S. inflation, the impending end of the Federal Reserve’s rate-hiking cycle, and Europe’s outperformance.

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 mood was not helped by First Republic Bank’s continued slump, or the ongoing wrangling over an extension to the U.S. debt ceiling.

Traders will look closely at the U.S. gross domestic product figures for the first quarter, due out later on Thursday, for any signs of a slowdown.

Elsewhere in currency markets, 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 was down 0.07% at 133.57 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.

Sterling was flat at $1.247, retaining Wednesday’s 0.48% advance.

“What we’re actually seeing is this cyclical upswing in Europe and the UK, as the U.S. is softening,” said Dominic Bunning, head of European FX research at HSBC (LON:HSBA).

“I think that story has further to play out through the course of the summer in particular.”

The euro was down 0.14% against Sweden’s krona at 11.38, having rallied 0.79% on Wednesday after the Swedish central bank was less hawkish on inflation than expected.

Australia’s dollar was up 0.22% at $0.662.