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While headline U.S. inflation logged its weakest pace in 1-1/2-years in January, traders focused on the core price gauge, which was up for the third straight month, giving the dollar some impetus.

The euro was trading below the psychologically important $1.13 level at $1.1283. Earlier in the session, it hit an intra-day low of$1.1245.

The dollar index, a gauge of its value versus six major peers, was marginally higher at 97.20, having gained 0.5 percent in the previous session. The index has rallied 1.7 percent so far this month, after two consecutive months of losses.

·       That contrasted with the wobbles in the euro <EUR=>. The single currency, which has around a 58 percent weighting in the dollar index, has tumbled 1.63 percent this month on the back of weaker-than-expected economic data out of the euro zone and expectations the European Central Bank will remain highly accommodative this year.

Euro zone industrial production fell more than expected in December, official estimates showed on Wednesday, pulled down by a drop in the output of capital goods, used for investment.

Political uncertainty in Spain, the currency bloc's fourth largest economy, has further hampered the euro.

·       Spain's parliament rejected a draft 2019 budget on Wednesday after Catalan separatists turned their back on the government, pushing the country close to an early national election amid an increasingly fragmented political landscape.

Broad risk appetite in financial markets has been on the uptick in the past couple of days on rising expectations of a breakthrough in the trade impasse between United States and China.

·       Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer are in Beijing for high level talks.

U.S. President Donald Trump said on Wednesday the talks with China were "going along very well" as they try to resolve the tariff dispute ahead of a March 1 deadline.

·       Elsewhere, the yen was steady at 110.99. The dollar has gained against its Japanese rival in recent weeks, up 1.9 percent so far in February. Analysts believe that Japanese demand for foreign bonds is one factor leading to weakness in the yen.

·       EUR/USD to Fall on Eurozone, German GDP? Downside Risks Growing

The Euro may have a painful fall tomorrow if quarter-on-quarter German and Eurozone GDP falls short of expectations. Current forecasts stand at 0.1 percent and 0.2 percent, respectively. Euro Area growth has been dramatically slowing and major economic indicators continue to underperform relative to economists’ expectations as shown by the Citi Economic Surprise Index.

Looking ahead, the Euro will struggle to maintain any significant upward momentum following yesterday’s disappointing industrial production data. Following the release, EUR/USD dropped and closed below 1.1269 with the next possible support at 1.1216. Given the fundamental outlook, it is difficult to say with confidence that the Euro has much room for upward momentum considering the many hurdles it must overcome in 2019.

·       The U.S. Congress on Thursday aimed to end a dispute over border security with legislation that would ignore President Donald Trump’s request for $5.7 billion to help build a wall on the U.S.-Mexico border but avoid a partial government shutdown.

Late on Wednesday, negotiators put the finishing touches on legislation to fund the Department of Homeland Security (DHS) through Sept. 30, the end of the fiscal year, along with a range of other federal agencies.

According to congressional aides, the final version of legislation would give the Trump administration $1.37 billion in new money to help build 55 miles (88.5 km) of new physical barriers on the southwest border, far less than what Trump had been demanding.

Trump has not yet said whether he would sign the legislation into law if the Democratic-controlled House of Representatives and Republican-led Senate approve it, even as many of his fellow Republicans in Congress were urging him to do so.

But Trump, widely blamed for a five-week shutdown that ended in January, said he did not want to see federal agencies close again because of fighting over funds for the wall.

·       China and the United States began high level trade talks in Beijing on Thursday, state news agency Xinhua said.

The talks are being led by Chinese Vice Premier Liu He, U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin, and will end on Friday, Xinhua said in a brief report.

·       China on Thursday reported exports and imports data for December that easily topped expectations.

Dollar-denominated exports for the month rose 9.1 percent from a year ago, according to Chinese customs data. China's exports in January were expected to have contracted 3.2 percent from a year earlier, according to economists in a Reuters poll, compared with the previous month's 4.4 percent decline.

January dollar-denominated imports, meanwhile, fell 1.5 percent on-year, which was far better than expectations of a 10 percent decline from a year earlier, according to the Reuters poll. Imports in December fell 7.6 percent from a year ago.

China's overall trade surplus was $39.16 billion in January. That easily topped the $33.5 billion expected, according to the Reuters poll. That was still lower, though, than December's trade surplus of $57.06 billion.

China's imports from the US plummet

China's closely watched trade surplus with the U.S. fell to $27.3 billion in January, from $29.87 billion in December.

In January, China's exports to the U.S. fell 2.4 percent from a year ago, while imports from its trade war opponent tanked 41.2 percent over the same period.

Despite the upbeat data, analysts say data from China in the first two months of the year must be treated with caution due to business distortions caused by the timing of the week-long Lunar New Year public holiday, which fell in mid-February in 2018 but started on Feb. 4 this year.

·       Spain could be headed for its third general election in less than four years after Catalan secessionists joined rightwing parties in rejecting the socialist government’s national budget.

The prime minister, Pedro Sánchez, had faced an uphill battle to secure approval for the 2019 budget in the face of opposition from critics of his minority government. He is due to make an announcement on his next steps on Friday after the weekly cabinet meeting, amid speculation a snap election could be called for April or May.

The next general election is currently due to be held next year.

·       Oil prices rose on Thursday, buoyed by hopes that potential progress in the latest Sino-U.S. tariff talks would improve the global economic outlook, and as China's trade figures including crude imports beat forecasts.

U.S. West Texas Intermediate (WTI) crude futures were at $54.16 per barrel at 0413 GMT, up 26 cents, or 0.5 percent, from their last settlement.

International Brent crude oil futures were up 37 cents, or 0.6 percent, at $63.98 a barrel.

 

Reference: Reuters, CNBC, Daily FX