On Friday, the euro was set for its largest weekly loss this year as it fell as investors increased bets that interest rates in the U.S. would grow more quickly than in Europe.
For the first time in five months, strong U.S. corporate earnings and the suspicion of additional rate increases in the U.S. drove the dollar to equality with the Swiss franc.
At a policy meeting on Thursday, market watchers were amazed by the amount of dovishness in comments by European Central Bank.
“(President Mario) Draghi’s discussion of the ECB’s reinvestment strategy has hammered home the message that the “flow component” of the recalibrated QE (asset purchase) program will remain sizeable,” said Valentin Marinov, head a research firm in London.
“Morever, the President’s comments on safeguarding QE’s longevity caught some market participants by surprise and this could leave the euro vulnerable in the short term.”
The euro dropped 0.3 percent to $1.1611, the lowest since July. 20 and is on track for the largest weekly loss in nearly a year.
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Benchmark 10-year German bond yields were at 0.41 percent, close to the 1-1/2 month low of 0.36 percent reached a week prior.
The dollar index rose 0.4 percent to 94.96. DXY, reaching three-month highs with weekly gains of 1.1 percent.
“From a broader point of view, we are somewhat surprised that the ECB did not take the opportunity to mark a sharper break with its current policy settings,” Rabobank strategists said.
Investor’s attention is still focused on who will be the next candidate to lead the U.S. Federal Reserve when Janet Yellen’s term is over in February 2018. U.S. President Donald Trump’s pursuit of the next central bank chair has reduced now to two candidates, Fed Governor Jerome Powell and Stanford University economist John Taylor.