The euro traded near a 14-month high on Friday and was on track for its best quarter in nearly 7 years, lifted by growing expectations that the European Central Bank is preparing to scale back its monetary stimulus. The euro has risen rapidly after Tuesday’s speech by European Central Bank President Mario Draghi bolstered expectations for the central bank to announce a reduction of its stimulus as soon as September. In addition, comments from Bank of England Governor Mark Carney and two top Bank of Canada policymakers on Wednesday ramped up expectations for interest rate increases from those central banks, putting pressure on the U.S. dollar.
“Obviously there’s a shift afoot. It really seems that there’s some coordinated effort going on out here among the G10 central banks,” said Stephen Innes, head of trading in Asia-Pacific for OANDA in Singapore, referring to the series of hawkish-sounding comments on monetary policy. The euro last traded at $1.1441, clinging near this week’s high of $1.1445, its strongest level since May 2016, having rallied 2.2 percent so far this week.
In the April-June quarter, the euro has climbed 7.4 percent, putting it on track for its biggest quarterly gain since the July-September quarter of 2010. The focus now is whether the euro can rise beyond $1.15, a threshold that has capped the single currency’s gains for most of the last two years, said Teppei Ino, analyst for Bank of Tokyo-Mitsubishi UFJ in Singapore.
“Judging from the prevailing mood, it looks like there could be a test of that level,” Ino said. The greenback hit a nine-month low against a basket of six major currencies, dented by the shift in market expectations toward more hawkish monetary policies in Europe and Canada, as well as lingering doubts about the chances of another U.S. interest rate rise this year.
The dollar index slipped to as low as 95.470 earlier on Friday, and last stood at 95.520. The Australian dollar hit a three-month high after a gauge of Chinese factory activity exceeded market expectations, with commodity-linked currencies also drawing support from firmness in oil prices.
The Australian dollar edged up 0.2 percent to $0.7699 , having risen to as high as $0.7712 at one point, its strongest level since March. Investors will be keeping close watch on the Reserve Bank of Australia’s monetary policy statement, due on Tuesday, for any shift in language from its neutral stance. The RBA is widely expected to hold interest rates at a record low of 1.50 percent next week. The Canadian dollar touched a five-month high of C$1.2970 per U.S. dollar on Friday, and was last up about 0.2 percent on the day at C$1.2983.