Euro surges above $1.21 to three year high

Joanna Estrada
January 13, 2018

It was eyeing CPI data due shortly after figures on Thursday showed USA wholesale prices dipped in December from November, reinforcing investors' expectations that inflation will remain low. On Tuesday, the benchmark rose 0.4% ( to end at 400.11, a fresh 2 1/2 year high and the first close above 400 since mid-2015. He noted trading is cautious ahead of the U.S. consumer price index data later in the global trading day. A move beyond the 1.3700 area argues for a move towards the 1.3830 level and February 2016 pre Brexit vote lows.

Investors took the relatively hawkish statement as a further signal that the European Central Bank will wind down its 2.55 trillion euro ($3.07 trillion) bond purchase scheme this year if Europe's economy continues to hum along.

The ECB's December 2017 meeting showed that the ECB must reconsider its policy in early 2018, and gradually adjust its language to reflect improved growth prospects. "Firstly, they make higher revenues in terms of their returns", John Moore, trader at Berkeley Capital, said. A weak CPI report will be bearish for the U.S. Dollar because it will probably lower the odds of at least three rate hikes by the Fed in 2018. Yet it still suggested consumer spending had made a sizeable contribution to economic growth for the fourth quarter as a whole, after a disappointing third quarter. The Australian dollar rose to $0.7891, from $0.7842, but shied away from stiff chart resistance at $0.7900.

What's driving the market: Investors took a break from bidding up European stocks after doing so over the past five sessions, the market's longest winning streak since early November. While the commodity-correlated Canadian Dollar was supported by three-year high oil prices, demand softened when it was announced that domestic building permits shrunk -7.7% in November, marking a significant turnaround from October's +4.4% gain.

He said: "A little bit of risk-off in the Nikkei and DAX appears to be weighing on early premarket indications of a lower USA open for the S&P 500 and the Dow".

The release of last month's meeting minutes of the European Central Bank (ECB) and weekly jobless claims in the USA helped lift gold prices on Thursday at the expense of the dollar.

Gold contracts for February in the United States increased by 0.2 percent to stand at $1,322.50 an ounce. GDP grew 2.2 percent in 2017 after expanding 1.9 percent in 2016.

Craig Erlam, senior market analyst at Oanda, said in a note: "If the reports turn out to be true and China no longer sees Treasuries as an attractive option, the repercussions could be significant as the country is one of the biggest holders of USA debt".

Spot gold was up 0.5 percent at $1,322.74 an ounce by 1:37 p.m. EST (1837 GMT) after touching $1,326.56 on Wednesday, the highest since September 15. The failure to overcome the highs of past year at 1.2095, could be a catalyst for further declines towards 1.1600. The day before they hit its strongest since late 2014 at $64.77 a barrel.

When the euro was created some 15 years ago, there was speculation that the new currency might come to challenge the dominance of the USA dollar as the worldwide reserve currency of choice.

Other reports by Click Lancashire

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