US dollar holds near four-month high against euro

London

THE US dollar hovered near a four-month high against the euro on Thursday as market participants weighed up the divergent recovery outlooks for the United States and Europe, and risk appetite in equities waned.

Global stock markets were at their lowest in two weeks during early European trading, after Chinese technology shares sold off due to concerns that they would be delisted from American stock exchanges.

Concerns about extended lockdowns in Europe also weighed on markets. German Chancellor Angela Merkel's decision to ditch plans for a lockdown over Easter did little to improve sentiment.

But Wall Street futures were up, ahead of data that is expected to show a drop in weekly jobless claims.

At 1213 GMT, the dollar index was up less than 0.1 per cent on the day, at 92.641, having hit its highest since November 2020, at 92.697, overnight.

The Australian and New Zealand dollars, which dropped in the previous two sessions, edged back up slightly against the US dollar, but both were only up by around 0.1 per cent on the day overall.

On March 24, US Treasury Secretary Janet Yellen and Federal Reserve chair Jerome Powell expressed their confidence in the US recovery during a second day of testimony to Congress.

"We think that market pricing for the US economic outlook for this year is leaving a very high threshold to be achieved," said Simon Harvey, FX analyst at Monex Europe.

The euro was down 0.1 per cent against the dollar, at US$1.1807.

Stephen Gallo, European head of FX strategy at BMO Capital Markets, wrote in a note to clients that he expected the euro to fall to US$1.16 over the next one month.

"The EU's 'third Covid wave', the relatively low vaccine take up rate, and a more subdued fiscal impulse will probably cause the eurozone's recovery to lag North America's by two to three months," Mr Gallo wrote. "The ECB's (European Central Bank) desire to cap yields is evidence that even a moderate re-pricing of European sovereign debt is a source of systemic risk," he said.

Mr Gallo also said that the handling of the vaccine rollout in Europe and "resultant forms of protectionism" could permanently deter investors.

European leaders meet on Thursday and will discuss vaccine supplies. REUTERS