The dollar held firm near a five-month high on Wednesday helped by gains in long-term US Treasury yields, while the euro shrugged off reports that a possible future Italian government would seek debt forgiveness from the European Central Bank.
The dollar index versus a basket of six major peers stood at 93.240 .DXY after rallying to 93.457 overnight, its highest since December 22. It was 0.03 per cent lower than Tuesday.
The US currency has gained since mid-April and clawed back most of its 2018 losses after a reassessment of the path of US monetary policy versus other countries.
Moves by China and the United States to avoid a full-blown trade war have allowed investors to focus on the yield advantage the United States enjoys over other countries.
The dollar rally stalled last week after weaker-than-expected April US inflation data but was lifted on Tuesday when strong US consumer spending numbers sent 10-year Treasury yields surging to a seven-year peak of 3.095 per cent US10YT=RR.
“Today could see a repeat of yesterday. Momentum would certainly seem to back a further dollar advance with little to stop US 10-year Treasury yields pushing to 3.20 per cent,” said ING FX strategist Viraj Patel.
Elsewhere, the euro was up 0.1 per cent to $1.1853 EUR= after brushing $1.1815, its weakest since late December.
The single currency did not appear to be impacted by a report overnight that Italy’s anti-establishment 5-Star Movement and far-right League plan to ask the European Central Bank to forgive 250 billion euros ($296 billion) of Italian debt.
“The euro is yet to meaningfully react this morning, reflective of a market that already has short-term downside plays on given the recent move, but also the market not fearing contagion risk for now,” Jordan Rochester, a London-based FX strategist at Nomura, said in a note to clients.
The single currency has performed well in 2018 with traders betting on prolonged dollar weakness because of the United States’ trade and budget deficits and investors expecting to allocate more money to the euro zone as its economy strengthens.
The Swiss franc extended its gains against the euro on Wednesday and was up 0.2 per cent to 1.1838 francs.
On Monday the franc, traditionally seen as a safe-haven asset, enjoyed its biggest one day rise against the euro since February, Reuters reported.
The yen barely budged after data showed Japan’s economy contracted for the first time in nine quarters during January-March.
The Australian dollar was up 0.3 per cent at $0.7491 AUD=D4 after sliding 0.7 per cent overnight.
The pound was a shade weaker at $1.3501 GBP=D3 after slipping to $1.3452 on Tuesday, its lowest since December 29.
