cancel-circle Switch
Loading...
Alerts

Dollar Soars and Euro Tanks as Central Banks Plot Different Paths

The euro plunged on Thursday and the US dollar had one of its best days in recent memory after two of the world’s most important central banks announced decisions on monetary policy. EUR/USD, now at 1.156, shed 2 percent, marking its biggest one-day decline since the summer of 2016.

Offering contrasting messages were the US Federal Reserve and the European Central Bank. While the Fed didn’t disappoint with its 25-basis point hike, which took US interest rates to a ten-year high of 2.0 percent, the ECB, by contrast, signalled it would leave its main refinancing rate unchanged at 0.0 percent until the latter stages of 2019.

“The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019 and, in any case, for as long as necessary to ensure that the evolution of inflation remains aligned with the current expectations of a sustained adjustment path,” the ECB said in a statement.

A widening interest rate differential between the US and Europe offers little incentive to hold euros instead of dollars and, consequently, a move by EUR/USD into the 1.14s seems inevitable in the coming days. Just four months ago, the pair traded above 1.255!

The ECB did at least announce it would phase out quantitative easing in Europe, which kept the euro’s losses within reasonable limits. Currently at €30bn per month, the ECB will reduce its liquidity-boosting asset purchases to €15bn for the September-December period, after which QE will end. Still, Thursday’s decision to maintain dovish policy even after the end of QE was “a material negative development for the euro,” said Goldman Sachs.

Support for the US dollar, which also gained handsomely against the Australian dollar, Swiss franc and Swedish krona, among others, accelerated after the US Commerce Department announced monthly retail sales growth of 0.8 percent – the biggest pick-up in sales in six months.

 

 
Please note that the opinions of our authors are their own and do not reflect the opinion of Best Exchange Rates and should not be taken as a reference to buy or sell any financial product.
 
 

Compare FX Providers and Banks for:

Foreign Transfers

Travel/Spend Abroad

Get a Better Deal when you Send and Spend Abroad.

Do NOT follow this link or you will be banned from the site!