Sat, May 27, 2023

Euro is hovering at a one-year high as the US outlook dims


On Thursday, the euro stayed at a one-year high versus the dollar. Europe’s strong economy contrasted with financial worries and another US debt ceiling standoff. It was recently up 0.05% against the dollar at $1.104, not far off the one-year high of $1.1096 set yesterday.

The dollar index, which compares the greenback to six major currencies, remained unchanged at 101.4. This came after a 0.39% drop the day before.

The British pound and the Japanese yen fell heavily under pressure.

Carl Hammer, chief strategist at European lender SEB, is anticipating a potentially more difficult environment for the US dollar. In fact,  people have already begun to position themselves for it. “The debt ceiling is approaching, and US inflation is expected to moderate a few months before the eurozone.”

Since reaching a 20-year high in September, the dollar has dropped more than 11%. Analysts believe it is due to a decline in US inflation. The end of the Fed’s interest rate increasing period and Europe’s strong showing.

On Wednesday, Germany raised its GDP estimates again, and a poll revealed that consumer confidence has continued to rise.

In contrast, capital goods spending in the United States decreased more than predicted in the latest statistics released overnight. It definitely fueled fears of a recession.

The prolonged slide of First Republic Bank and the continuous bickering over an increase in the US debt ceiling did not improve the mood.

Traders will look for indications of a slowdown in the United States’ gross domestic product data for the first quarter, which are coming out later on Thursday.

The yen remained stagnant in other foreign exchange markets as the Bank of Japan commenced its two-day meeting, the first one led by newly appointed governor Kazuo Ueda. The dollar decreased 0.07% to 133.57 yen.

The market assumption is that Ueda will maintain ultra-easy policy settings on Friday. Still, no one is ready to rule out another surprise like the December surprise doubling of the 10-year bond yield range.

Cyclical upswing in Europe

Sterling was unchanged at $1.247, maintaining its 0.48% gain from the previous day.

“What we’re seeing is a cyclical upswing in Europe and the UK as the US softens,” said Dominic Bunning, HSBC’s director of European FX research.

“I believe that story will continue to unfold over the course of the summer in particular.”

At 11.38 a.m., the euro was down 0.14% against the Swedish krona after rallying 0.79% on Wednesday when the Swedish central bank sounded less hawkish on inflation than predicted.

The Australian dollar rose 0.22% to $0.662.



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