Interest rate changes will push dollar lower

THE euro is testing a two-year high against the dollar as we go to print, and before the year is out, we could well see it rise to tackle $1.36 — the euro’s lifetime high, reached on New Year’s Eve 2004.

So what’s driving this rally in the single currency? Let’s consider US and eurozone factors separately.

First of all, let’s not forget that we’re just three days away from the next hike in the eurozone interest rate cycle. On Thursday, the Governing Council of the European Central Bank will meet, and if the council is as good as its word, we can be certain that rates will rise by 0.25% this week.