The dollar stood tall against a basket of currencies on Thursday, as the euro retreated to a five-month low on concerns the political developments in Italy could cause wider disruptions in the common currency bloc. The euro was 0.05 percent higher at $1.1813 after sliding overnight to $1.1763, its lowest since Dec. 18.
Political uncertainty in Italy, where populist parties have jostled to forge a common platform in a bid to lead the next government, have been a major drag on the euro.
The common currency slid to the five-month low on reports that Italyâ€™s anti-establishment 5-Star Movement and anti-immigrant League may ask the European Central Bank to forgive 250 billion euros of debt as the parties worked to draft a coalition programme.
â€œThe euro looks on track for further losses as market participants still appear to have more long positions on the euro to liquidate,â€ said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo.
â€œWhile the situation in Italy is a concern for currencies, the 5-Star Movement sees Britain struggle with its EU exit plan and is unlikely to pursue a similar agenda. The political fallout from Italy could be relatively well contained as a result.â€
For now the euro also faced pressure from a bullish dollar, which has been boosted this week as U.S. benchmark yields broke above the 3 percent threshold to a seven-year high.
The dollar index against a basket of six major currencies was a shade lower at 93.298 after rising on Wednesday to 93.632, its highest since Dec. 19.
The dollar was steady at 110.380 yen. A rise above 110.450 would take the greenback to its highest since Feb. 2 versus its Japanese peer.
The Australian dollar was little changed at $0.7514 after gaining 0.6 percent overnight, buoyed by a rise in prices of commodities such as copper.