By Rae Wee and Lucy Raitano
SINGAPORE/LONDON (Reuters) -The euro dipped slightly but stayed near multi-month highs on the dollar on Thursday, with the U.S. currency still under pressure from worries about slowing economic growth and as traders await the outcome of a debate in Germany over fiscal reforms.
A rise in global trade disputes and worries over U.S. recession risks have rattled global markets and led to huge volatility in currencies as traders seesaw between relief and angst over U.S. President Donald Trump’s policy changes.
Trump on Wednesday threatened further tariffs with the EU and Canada having retaliated for those already in place, but in terms of transatlantic currency pairs at least the proposals have done more damage to the dollar than European currencies.
The euro was last $1.0855 down marginally but near the five-month top hit earlier in the week, and sterling was steady at $1.2933.
The euro has drawn additional support from Germany’s fiscal reset plan. Germany’s outgoing lower house of parliament will hold a special session on Thursday to debate the 500 billion euro fund for infrastructure and sweeping changes to borrowing rules in Europe’s largest economy to bolster defence.
Michael Pfister, FX analyst at Commerzbank, said he will be carefully watching the outcome of the debate.
“If the fiscal packages come through then markets expect higher growth in Germany but in the euro area as well because Germany is obviously the biggest economy,” Pfister said.
“That’s why the market is very hopeful that the package will help to increase Germany’s growth,” he said.
The Japanese yen was down marginally at 147.925 to the dollar, little moved by Bank of Japan (BOJ) Governor Kazuo Ueda’s comments reaffirming the bank’s resolve to shrink its “too big” balance sheet.
While the BOJ is expected to leave rates unchanged at next week’s policy meeting, over two-thirds of economists polled by Reuters expect a rise of 25 basis points to 0.75% in the third quarter, most likely in July.
Currency markets were also processing data from the previous day showing U.S. inflation rose slightly less than expected in February, but the relief it offers could be temporary as the data did not fully capture the cascade of Trump’s tariffs.
That all left the dollar index, which tracks the unit against a basket of six peers, up a whisker at 103.82, but still near five-month lows
Currencies elsewhere traded in tight ranges as investors remained on edge over escalating trade rows.
The Swiss franc was buoyed by safety bids and hovered near its strongest in three months at 0.882 per dollar.
The Canadian dollar was largely flat at 1.4384 per dollar, after the Bank of Canada trimmed its key policy rate by 25 basis points on Wednesday, with trade tensions leaving traders on edge.
(Reporting by Rae Wee in Singapore and Lucy Raitano in London; Editing by Jamie Freed, Rachna Uppal and Angus MacSwan)
