LONDON (Reuters) – The dollar remained close to a five-month high on Wednesday, helped by gains on long-term US Treasury yields, while the euro deterrished reports that a potential future Italian government would seek debt relief from Europeans Central Bank.
The Dollar Index versus a basket of six major competitors stood at 93,240 .XXY after rallying at 93,457 overnight, the highest since December 22nd. It was 0.03 percent lower than on Tuesday.
The US currency has risen since mid-April and recouped most of its losses in 2018 following a revaluation of US monetary policy relative to other countries.
China and the United States' efforts to avoid a full-blown trade war have allowed investors to focus on the yield advantage that the US enjoys over other countries.
The dollar rally stopped last week after weaker than expected US April inflation data, but was lifted on Tuesday as strong US consumer spending spiked 10-year Treasury yields to a 7-year high of 3.095 percent US10YT = RR rose.
"Today could be a repeat of yesterday, and momentum would certainly support another dollar advance without pushing US 10-year Treasury yields down to 3.20 percent," said ING FX Strategist Viraj Patel.
Elsewhere, the euro rose 0.1 percent to $ 1.1853, down from $ 1.185, the weakest since the end of December.
The single currency seemed unaffected by an overnight report that Italy's anti-establishment 5-star movement and the extreme right-wing league call on the European Central Bank to liquidate 250 billion euros of Italian debt.
"The euro still needs to react in a meaningful way this morning, reflecting a market that already faces short-term downside risks in view of the recent move, but the market is also currently not concerned about contagion risk." Jordan Rochester, London FX strategist at Nomura, said in a statement to clients.
The single currency has performed well in 2018, traders have been plagued by US dollar trade and budget deficits, and investors are expecting more money for the Eurozone as their economies strengthen.
The Swiss franc extended its gains against the euro on Wednesday, gaining 0.2 percent to 1.1838 Swiss francs.
On Monday, the Swiss franc, traditionally considered a safe haven, saw its largest one-day advance against the euro since February.
The yen barely moved after data showed that Japan's economy had shrunk for the first time in nine quarters from January to March.
The Australian dollar edged up 0.3 percent to $ 0.7491 (D4) after plummeting 0.7 percent overnight.
The pound weakened by $ 1.3501 GBP = D3 after falling to $ 1.3452 on Tuesday, its lowest level since December 29th.
Report by Tom Finn; Editing by Catherine Evans