Euro, Pound hit Multi-Week Lows as Dollar Remains Firm

Investing.com - The euro and the British pound fell to multi-week lows against the firmer U.S. dollar on Thursday as weak economic data out of the euro zone and concerns over Brexit weighed.

EUR/USD dipped 0.1% to 1.1249 by 03:44 AM ET (08:44 GMT), the weakest level since mid-November after data showing that Germany’s GDP was flat in the fourth quarter, after a 0.2% contraction in the previous quarter.

That means the euro area’s largest economy just managed to avoid a technical recession, but has also failed to expand since June. The data underlines expectations the European Central Bank will remain highly accommodative this year.

Demand for the greenback continued to be underpinned after data pointing to sustained strength in core U.S. inflation.

While headline U.S. inflation logged its weakest pace in 1-1/2-years in January, traders focused on the core price gauge, which was up for the third straight month, giving the dollar some impetus.

The greenback was hit earlier this year by the Federal Reserve's shift to a cautious policy stance. However, the latest data suggest the central bank will need to stay vigilant on pricing pressures even as it adjusts to heightened growth risks.

"The trend in core U.S. inflation remains steady, against some concerns of a potential decline..indeed at 2.2 percent year-on-year, the current reading is up from the 1.8 percent reading a year ago," said Rodrigo Catril, senior currency strategist at NAB. "Overall the data suggest that we cannot rule out a resumption of Fed rate hikes later in the year."

The pound was on the back foot, with GBP/USD down 0.14% to a one-month low of 1.2824 ahead of a parliamentary vote later in the day on Prime Minister Theresa May's plan for an agreement with the European Union on the terms of its withdrawal from the bloc. Britain is due to quit the EU on March 29.

The dollar was holding steady against the yen, with USD/JPY at 111.03.

Risk appetite continued to remain supported by growing expectations of a breakthrough in the trade impasse between U.S. and China.

Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer are in Beijing for high level talks.

U.S. President Donald Trump said on Wednesday the talks with China were "going along very well" as they try to resolve the tariff dispute ahead of a March 1 deadline, when U.S. tariffs on $200 billion worth of imports from China are scheduled to rise to 25% from 10%.

Bloomberg reported earlier that Trump is considering a 60-day extension to that deadline if he sees enough progress being made.

The U.S. dollar index, a gauge of its value versus six major peers, ticked up to 97.02 having gained 0.45% in the previous session. The index has rallied 1.7% so far this month, after two consecutive months of losses.

The Australian dollar, often considered a barometer for global risk appetite, was higher for a second day, with AUD/USD rising 0.25% to 0.7105 on optimism about the China-U.S. trade talks. The strength in the Aussie was also buoyed by stronger-than-expected economic data out of China, Australia's largest trade partner.

China's January dollar-denominated exports rose 9.1% from a year earlier, while imports dropped 1.5%, both beating analysts' expectations, official data showed on Thursday.

- Reuters contributed to this report

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