The dollar continued its assault on the euro Wednesday, rising to its highest since January amid concerns that Europe’s recent summit did little to alleviate its sovereign debt crisis.
Ratings agency continue to warn on European government debt, and Italy’s borrowing costs set fresh highs despite sweeping austerity measures.
While structural reforms are necessary in the long-term, it remains to be seen whether political leaders or the European Central Bank will offer short-term stimulus to boost economies on the verge of a double-dip recession.
The Ifo Institute now expects the Germany, the region’s most powerful economy, to grow an anemic 0.4 percent in 2012.
“Based on the assumption that the euro crisis does not worsen and that Italy in particular can continue to finance itself via the capital market, it should be possible to avoid a recession in Germany,” the Ifo Institute said.
Yesterday’s Federal Reserve announcement also supported the dollar. The Fed refrained from another round of quantitative easing, and gave a relatively hopeful assessment of the U.S. economy.
The dollar jumped to $1.2947 versus the euro, a penny from taking out its highs of the year, set back in January.
The buck briefly touched a 2-month high versus the sterling, hitting $1.5410 before leveling off.
Eurozone industrial production declined for the second straight month in October, Eurostat said Wednesday.
Industrial output dropped slightly by 0.1 percent month-on-month, after falling 2 percent in September. It was expected to remain flat in October.
U.K. unemployment increased to a 17-year high as companies scaled back their employment plans due to weak economic prospects.
There was little movement versus the yen, with the buck edging up to Y78.05.
Risk aversion drove the dollar above C$1.04 versus its Canadian counterpart.
A rebound in the price of imported fuel contributed to an increase in the price of U.S. imports in November, according to figures released Wednesday by the Labor Department, although prices rose by less than anticipated.