Euro to US Dollar Exchange Rate Reaches Fresh 3-Year High

Euro to US Dollar Exchange Rate Reaches Fresh 3-Year High

Troy Powers
January 28, 2018

On Thursday, having left policy unchanged, the bloc's central bank warned the euro's surge was a potential risk and said it might have to review strategy if US comments on a weak dollar led to a change in monetary conditions.

The US Dollar sank lower in Asia Pacific trade as amplified existing selling pressure.

Economists surveyed by Bloomberg don't expect policy makers to start making changes to their guidance until March, with an end-date for asset purchases announced by June.

A market gauge of inflation expectations closely watched by the European Central Bank, the five-year five-year forward breakeven rate, closed Wednesday at 1.765 percent, down from 1.78 percent earlier in the week.

This triggered a rally in the euro to three-year highs, threatening the ECB's policy of pushing euro zone inflation higher. The refinancing rate probably won't rise until the latter half of next year.

"Recent volatility in the exchange rate represents a source of uncertainty which requires monitoring with regard to its possible implications for the medium-term outlook for price stability", Draghi said during his post-announcement press conference.

Germany's Ifo index rose to 117.6 points in January from 117.2 in December, matching an all-time high from November.

Looking ahead to the rest of the day, we do not have any major news from the Eurozone but we have the advance GDP data from the U.S. which should bring in some volatility.

ECB Meeting: Coverage and Reactions of the Euro Exchange Rate Complex

Policy makers reiterated that they'll continue buying 30 billion euros ($37 billion) of assets a month until at least the end of September.

Back in eurozone, Draghi said euro area expansion was continuing at a robust pace and has strengthened the bank's confidence that inflation will move near to its target of about 2%.

The dollar fell 0.52 percent against a basket of major currencies and held near three-year lows.

That fall came after President Mario Draghi made clear that he does not expect interest rates to increase during 2018. The disappointment likely scaled back expectations regarding the prospect of a rate hike from the RBNZ this year.

Some market participants are also concerned that Trump may encourage more protectionist policies at a speech in Davos around 1300 GMT and at his State of the Union speech next week, policies that may ultimately end up pushing the dollar lower.

No changes are expected Thursday.

He said several European Central Bank policymakers at a meeting on Thursday had questioned a change in US policy.

Good start of 2018 for the Eurozone economy: the PMI index created by Markit saw an increase of 59.6 points from 58.1 points in December, reigniting hopes for a further acceleration of the economic activity in the Eurozone that could bring inflation closer to the 2% mark advised by the European Central Bank.

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