The euro on Friday posted its biggest weekly rise in more than four months, with the US dollar weakening on cautious signals from the US Federal Reserve about further rate hikes.
The euro has been stuck in a US$1.12-US$1.15 range for the past three months due to growth fears and signs that the European Central Bank (ECB) is unlikely to end its stimulus soon.
However, dovish Fed minutes this week have triggered dollar-selling, lifting the euro as high as US$1.1581 and propelling it past a 100-day moving average for the first time in three months.
The single currency has gained 1.2 percent this week.
“The euro remains supported by the soft dollar story. The risk of a short squeeze perhaps to the US$1.162 area remains,” said Chris Turner, head of foreign exchange at ING in London.
However, a soft macro outlook suggests that “Europe will struggle to attract rotational flows out of US markets,” he added.
Despite its gains, the euro has been pressured by a slew of weaker-than-expected economic data, especially from France and Germany.
In addition, the ECB is widely expected to remain accommodative this year, which traders have said should prevent the currency from breaking much higher.
Another reason for euro strength could be a resurgence this week in the offshore Chinese yuan.
“A stronger yuan means that 23.6 percent of the euro’s trade-weighted basket is going up, and that means that even a currency weighed down by domestic economic and political woes can get a little lift against the dollar,” said Kit Juckes, a currencies strategist at Societe Generale SA.
The yuan has breached the key 6.8 per US dollar level in both onshore and offshore trade.
Against the backdrop of sensitive trade negotiations, it has risen 1.8 percent this week in its biggest gain since July 2005, when Beijing abandoned the yuan’s peg to the US dollar.
Yuan traders had on Thursday started offloading US dollars in their proprietary accounts following the wrap-up of three days of US-China trade talks in Beijing. Markets treated absence of any bad news from those negotiations as good news.
“Some corporate clients were joining to sell their dollars,” said a trader at a foreign bank in Shanghai.
US Treasury Secretary Steven Mnuchin late on Thursday said that Chinese Vice Premier Liu He (劉鶴) will “most likely” visit Washington later this month for trade talks.
Currencies such as the Australian dollar, a gauge of risk appetite, and the New Zealand dollar are likely to see further gains if a US-Sino trade deal is reached, said Sim Moh Siong, currency strategist at Bank of Singapore Ltd (新加坡銀行).
In Taipei, the New Taiwan dollar fell against the greenback, slipping NT$0.020 to close at NT$30.802, but it was up 0.2 percent for the week from last week’s NT$30.863.
The US dollar index on Friday rose 0.1 percent to 95.66, down 0.5 percent for the week.
The index has fallen about 3 percent since the middle of last month on expectations that a slowdown in growth, both in the US as well as globally, will restrict the Fed from raising interest rates this year.
Fed Chairman Jerome Powell said on Thursday that the US central bank has the ability to be patient on monetary policy given that inflation remains stable.
The pound jumped on Friday on growing expectations that Britain will seek to delay its scheduled departure date from the EU.
It rose as much as 0.6 percent to US$1.2851, its highest since late November, before settling at about US$1.28, up from last week’s US$1.27.
Additional reporting by CNA
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