Close to $1.20, the euro climbed to a two-and-a-half-year high against the dollar in thin trade yesterday, extending gains made at the end of last week, writes Sam Forgione
European Central Bank president Mario Draghi’s decision to hold back from talking down the euro at the central bankers’ meeting in Jackson Hole, on Friday, despite the currency’s double-digit gains this year, continued to weigh on the dollar and sent the euro to $1.1963 yesterday, its strongest against the greenback since January 2015.
The dollar also weakened after Tropical Storm Harvey paralysed Houston, the US’s fourth-biggest city, spurring worries about the storm’s potential impact on the American economy.
The dollar index, which measures the greenback against a basket of six major rivals, hit its lowest since May 2016 of 92.369.
“In general, what you’re seeing is a consistent tone of dollar weakness,” said Kathy Lien, managing director at BK Asset Management in New York.
“The disappointment from Yellen at Jackson Hole on Friday has carried over to trading this week”, Lien said, adding that Draghi’s remarks continued to underpin the euro while the impact of Harvey was weighing slightly on the greenback.
A public holiday in global foreign exchange capital London kept the market subdued. While hitting multi-month lows, the dollar index was last down only 0.4% and the euro was up just 0.2%.
The euro was broadly expected to remain firm in the short-term as investors focused on the ECB and whether it will announce plans to reduce debt-buying at its September policy meeting next week.
“[Draghi] does not seem to be overly concerned with the current euro levels, which is the market’s justification to move the euro higher,” said Commerzbank currency strategist Esther Reichelt in Frankfurt. European shares fell yesterday as the euro strengthened.
The Stoxx index for eurozone stocks fell up to 0.7% to a two-week low before paring its losses to end 0.4% lower on the day.
Almost all sectors suffered losses yesterday with materials and construction stocks the biggest drag to the region’s equities.
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