The euro rose for a third day against the dollar on Thursday, pushing above $1.12 for the first time in two months on growing concern over the US economy's prospects. With signs it will hold off on more monetary easing for the moment, the Bank of Japan also added to the trend. The yen rose to its strongest in a month before steadying. The euro, up more than 6 percent against the dollar since April 13, pushed to a two-month high of $1.1249 in morning trade in Europe before steadying around $1.1200.
A low reading of US first quarter growth capped a poor run of economy numbers on Wednesday and the Federal Reserve's policy meeting was also seen confirming it will hold off again with any interest rate rise. The scenario that has driven the dollar higher over the past year - that the United States is ready for a first rise in rates in almost a decade - is not yet dead. But with other major economies struggling, there are growing doubts.
"We still see this as a correction to the dollar's rise over the last year but near term it probably has further to run," said Ian Stannard, head of European FX strategy at Morgan Stanley in London "A move up into the $1.15 area is definitely not out of the question. It will need some strong data surprises in favour of the dollar to turn this around."
The Bank of Japan, whose steady campaign of money printing has knocked more than a fifth off the value of the yen in two years, held off with another round of easing on Thursday and said it was confident inflation would begin to rise. That prodded the yen to as high as 118.50 in early trade in Europe.
"They have cut their inflation forecast but they still expect inflation to start rising in the second half of the year," said Manuel Oliveri, a strategist with Credit Agricole in London. "That says to me that monetary policy expectations remain stable and yen should hold in a range going forward." The dollar last traded at 118.94 yen, down 0.1 percent on the day. The other big losers were the New Zealand and Australian dollars, both shedding around 1 percent in response to signs of more monetary easing in the pipeline from their respective central banks. Dealers said the Aussie had been knocked back by an article in sister papers the Sydney Morning Herald and The Age predicting the Reserve Bank would cut rates next week, in contrast to signals last week from Governor Glenn Stevens. The kiwi last traded at $0.7614, down 0.9 percent on the day and retreating from a three-month high of $0.7744 set on Wednesday. The Aussie fell 1.2 percent to $0.7912.
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