NEW YORK: The US dollar edged higher against the euro on Thursday after the European Commission slashed its economic growth forecasts for the euro zone due to the expected impact of trade tensions and other challenges for the bloc's largest countries.
In a quarterly economic forecast, the EU executive revised down its estimates for inflation in the 19-country currency bloc next year and also cut euro zone growth estimates for this year and next.
The euro was 0.08 percent lower against the greenback, on pace for its fourth session of losses.
It dropped earlier in the session after German industrial output unexpectedly fell in December.
Global trade tensions and growing public debt are hastening a slowdown in the largest countries of the bloc, complicating the European Central Bank's plans for an interest rate hike this year and weakening the single currency.
"The report is just basically outlining what everybody now is very well aware of, that there is a marked slowdown," said Alfonso Esparza, senior currency analyst at OANDA in Toronto.
"Everything is sort of compounding in this narrative that the central bank will probably not do anything for the rest of the year," he said.
The dollar index, which tracks the greenback versus the euro, yen, British pound and three other currencies, was up 0.04 percent at 96.433, on pace for its sixth session of gains.
The dollar's gains come despite the Federal Reserve's dovish shift on interest rates last week.
"When analyzing a currency's exchange rate, it should be relative to a peer. So far it seems none of these peers have a competitive advantage, making the dollar the less unloved currency," Hussein Sayed, strategist at forex broker FXTM said in a note.
The number of Americans filing applications for unemployment benefits dropped from near a 1-1/2-year high last week, pointing to sustained labor market strength that should continue to underpin the US economy.
Elsewhere, the Australian dollar steadied on Thursday, a day after Australia's central bank's signaled a shift from its long-standing tightening bias and sent the Aussie down 1.8 percent.
Sterling briefly fell more than half a percent before recovering its losses and rising toward $1.30 in volatile trade after the Bank of England said Britain faced its weakest economic growth in a decade due to uncertainty over Brexit.
The Canadian dollar weakened to its lowest in more than one week against the greenback amid fears of a global slowdown and ahead of domestic jobs data on Friday.
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