The US dollar rose to one-week highs against the euro on Thursday after the European Commission said Italy's 2019 budget draft is in serious breach of EU budget rules. The step prepares the ground for what would be an unprecedented rejection of a member state's fiscal plan. The euro tumbled to $1.1455, its lowest against the greenback since October 9, on the news.
The single currency and the British pound also dropped as summit talks in Brussels failed to resolve a Brexit standoff between London and the EU over the status of the Irish border, an issue playing an increasingly dominant role in negotiations. "It's a combination of concerns in regards to the somewhat strong language at the EU commission has taken in regards to the submission of the Italian budget," said Bipan Rai, head of North American foreign exchange strategy at CIBC Capital Markets in Toronto. "Additionally we still do have that looming uncertainty in regards to Brexit."
The dollar was also supported by hawkish minutes from the Federal Reserve's September meeting released on Wednesday, which showed that Fed policy makers are largely united on the need to raise borrowing costs further.
The Japanese yen gained as US stocks sank more than 1 percent, hurt by weak industrial earnings that raised worries about rising expenses and the impact of tariffs.
China's currency traded near a three-month low against the dollar after a semiannual report by the US Treasury refrained from naming China a currency manipulator but showed concern about yuan depreciation. "Of particular concern are China's lack of currency transparency and the recent weakness in its currency," said Treasury Secretary Steven Mnuchin.
By stating that the Treasury will monitor and review the yuan's moves over the coming six months, "the US explicitly noted that it stands ready to name China in its April 2019 report," Citigroup analyst Calvin Tse said in a report. Deutsche Bank strategists termed the Treasury report "as a bit of an escalation without being too dramatic." The greenback gained 0.29 percent against the Chinese currency to 6.95 per dollar.