The euro hit a six-month peak and German stocks touched a record high yesterday as signals on further European integration contrasted with political turmoil and fresh doubts about the economy in the United States.
The euro’s rally was reinforced by dollar losses prompted by allegations that US President Donald Trump disclosed highly classified information to Russia’s foreign minister about a planned Islamic State operation.
That conspired with doubts over Mr Trump’s economic policy and a run of weak data to dampen expectations of a rate hike from the world’s biggest economy next month. Wall Street was set to open flat.
Euro zone markets were meanwhile buoyed by robust growth data and talks between Germany and French leaders which sought to reinvigorate a European project shaken by Britain’s planned exit and may even open the door to changing treaties to facilitate ambitious reform.
In bond markets, the premium that investors demand for holding lower-rated southern European debt over top-rated German peers fell sharply in a sign of growing confidence in the bloc’s economic and political outlook.
“There is enough going on independently of the United States to have people think more benignly about the euro,” said Donal O’Mahony, global strategist at Davy in Dublin.
“We are sharing responsibility and we are conforming and Europe can be more unified on some of the other ingredients to the fiscal story than it has been prepared to deliver so far.”
The euro was comfortably the best performing G10 currency yesterday, up around 0.8 per cent.
The British pound sank to a five-week low against the resurgent euro and the dollar index – which measures the greenback against six other major currencies – was down around 0.5 per cent on the day.
A weak manufacturing report from the New York Federal Reserve on Monday trimmed expectations of a Federal Reserve rate increase next month, weighing on the currency.
Expectations of a rate increase in June fell to 74 per cent compared to 84 per cent last week, according to the CME Fedwatch.
An index of world stocks nudged to a new high yesterday, with German and British bourses individually breaking all-time records and Asian shares earlier hitting a two-year peak.
Part of that bounce came from commodity-related firms as oil moved back towards a three-week high breached on Monday,
Brent crude has gained nearly nine per cent this week with top producers supporting prolonging supply cuts until the end of March 2018 in a bid to drain a global glut.
Brent crude oil was up 20 cents at $52.02 a barrel. United States light crude also gained 20 cents at $49.05 a barrel. Both benchmarks have risen more than $5 since hitting five-month lows 10 days ago.