By Peter Nurse

Investing.com – The dollar edged lower in early European trade Thursday, but remained near its one-year high on the back of ongoing safe-haven demand and expectations for tighter U.S. monetary policy in the near future.

At 2:55 am ET (755 GMT), Dollar Index, which measures the greenback’s performance against six other currencies, was just below 94.320. It hit the 94.435 mark on Wednesday, the first time it has done so since September 2020.

fell 0.1% to 111.91, after climbing to its highest level since February 2020. edged higher to 1.1599, just above a 10-month low, rose 0.2% to 1.3443, helped by second-quarter GDP growing 5.5%, more than expected, while the risk sensitive rose 0.4% to 0.7205. 

Stock markets have edged higher Thursday, rebounding after Tuesday’s equity-market rout a day earlier, but U.S. Treasury yields remain elevated, with the benchmark 10-year yield still close to its highest levels since June, providing the dollar with support.

The Federal Reserve is being criticized for possibly ending its bond-buying program in the current period of low global economic growth, high inflation and slowing global economic growth. This could push yields higher. 

The U.S. government debt ceiling is a major problem that could lead to the shutdown of the country, helping the safe-haven currency. 

Senate Majority Leader said late Wednesday that lawmakers had reached an agreement to extend government spending until Dec. 3, but this just kicks the can down the road and the threat of a catastrophic default remains real, albeit one that has been averted many times before in similar situations.

“The uncertainty around the timing of debt-ceiling legislation may continue to unnerve a debt market that is already weighing inflation and tightening concerns,” said analysts at ING, in a note. “Ultimately, this should contribute to keep any dollar weakness caused by improvements in the risk environment as short-lived, in our view.”

Also helping the greenback are concerns about the growth outlook in China, the second largest economy in the world, especially after factory activity unexpectedly contracted in September as high raw material prices and power cuts continued to pressure manufacturers.

fell 0.1% to 6.4646, after the official fell to 49.6 in September versus 50.1 in August, slipping into contraction for the first time since February 2020.

rose 0.2% to 25.5095 ahead of the Czech National Bank’s policy-setting meeting later Thursday, which is expected to see the bank raise its benchmark rate by half a point to 1.25%. After the inflation spike, this would represent the highest increase since 1997.