The euro hovered near its highest level in a year against the dollar on Thursday, as the strength of the European economy contrasted with the risks of spreading banking crises in the United States and issues related to the debt ceiling and potential recession there. The risk-sensitive Australian dollar struggled to remain above the key 66-cent level.
The yen stabilized as the Bank of Japan began its two-day policy meeting, the first under its new governor Kazuo Ueda. The euro rose 0.05% to $1.10415, heading once again towards the peak recorded the night before at $1.1096, the highest level since April of last year.
The dollar index, which measures the performance of the U.S. currency against six major currencies, the most influential of which is the euro, remained stable at 101.41 after dropping 0.42% on Wednesday when it hit a nearly two-week low of 101.00.
Germany adjusted its growth forecast upward on Wednesday, and a survey showed continued increases in consumer confidence. In contrast, spending on capital goods in the United States fell more than expected in the latest data, raising concerns about a slowdown. The situation at First Republic Bank, experiencing a collapse, did not help boost sentiment, along with the ongoing debate over raising the U.S. debt ceiling.
Christina Clifton, senior currency analyst at the Commonwealth Bank of Australia, wrote in a client note, "The robust eurozone economy, along with core inflation that is still rising and not retreating, could prompt the European Central Bank to maintain a strong tightening stance, which supports the euro." She added that, at the same time, inflation in the U.S. remains significantly detached from growth, keeping pressure on the Federal Open Market Committee to tighten policy further.
Meanwhile, the dollar remained nearly stable at 133.63 yen. The market expects Bank of Japan Governor Ueda to leave the extremely accommodative monetary policy unchanged on Friday.
Confidence among Australian dollar traders is growing that the Reserve Bank of Australia will keep interest rates unchanged at next week's meeting following some easing in consumer price index data released on Wednesday. The currency settled at $0.6603 on Thursday, after dropping to a one-and-a-half-month low of $0.6592 in the previous session.
