THE EURO hit its lowest point since the start of 2003 against the dollar yesterday as the Federal Reserve’s plans for tightening monetary policy added further momentum to the greenback’s surge since the election of Donald Trump as US President.
The euro/dollar spot exchange rate hit a low of $1.0367 in afternoon trading before recovering slightly.
Stark divergence in monetary policy between continents and heavy investor assumptions of a big fiscal stimulus from Trump have driven the dollar to fresh highs in recent months. In this environment a weak political outlook in Europe has dealt a double blow to the euro.
Chris Bailey, Europe strategist at Raymond James, said: “We’re at a sentiment extreme point,” with thin trading helping to strengthen downward moves for the euro.
The dollar index against a basket of currencies– but which is heavily weighted towards the euro – also hit its highest point since the end of 2002.
“There is a growing division between the tightening monetary policy in the US and the loosey goosey situation in Europe, a schism made clear on the forecasts markets,” said Connor Campbell.
Monetary policy is likely to continue to diverge over the coming year as the US tightens but the European Central Bank remains committed to expansionary measures to boost growth. Analysts have been eyeing euro/dollar parity for months, and the geopolitical hazards in 2017 are set to be a regular occurrence.
Michael Hewson, chief market analyst at CMC Markets UK, said: “If anything the euro should be much lower, if yield differentials are any guide given that 10 year differentials are at levels in favour of the US dollar last seen in 1989, when the Berlin Wall came down.”