The euro tore past $1.25 and its highest in three years yesterday, after the European Central Bank showed little more than minor discomfort about the currency’s hottest run in nearly four years.
Concerns about US protectionism kept the dollar weak after its worst day in six months, but it was the signals – or lack of – from the ECB after it first meeting of 2018 that sent the euro bulls charging again.
The currency had already broken above $1.24 for the first time since late 2014, but as ECB chief Mario Draghi kept comments restricted to the side-effects of volatility rather than the outright surge, it soared past $1.25.
The euro eventually ran out of steam as Mr Draghi then said there was little chance of an ECB rate rise this year. It sagged back to just under $1.25 though a sell-off in bond markets remained firmly in motion.
The yield on 10-year German government bonds, the benchmark for the euro bloc, hit a six-month high at 0.56 per cent and Southern European bond yields unwound earlier falls. That also pushed US Treasury yields to the cusp of 2.67 per cent.
Stock markets squirmed amid the gyrations too. Wall Street’s main markets opened higher, helped by the dollar’s broad weakness and the latest flurry of big-name company earnings.
The euro’s strength left the pan-European STOXX 600 struggling again though as Germany’s exporter-heavy DAX went back 0.6 per cent, France’s CAC slipped 0.3 per cent and London’s FTSE turned red too.
As well as the euro’s $1.25 milestone, sterling had hit a new post Brexit vote high against the dollar of $1.4250 and had also climbed to its highest in six months against the euro before the ECB’s shake up.
Oil prices, a major driver of inflation, added to all the speculation of higher global interest rates as Brent crude hit $71 per barrel for the first time since 2014.
Asian trading overnight, meanwhile, had been a mixed bag, with many of the moves driven by the weakening of the dollar.
MSCI’s broadest index of Asia-Pacific shares outside Japan touched an all-time peak for the ninth session in a row, but Tokyo’s Nikkei fell 1.1 per cent, hit by the yen’s latest jump against the greenback.
Wall Street’s rise though meant the MSCI ACWI, the index provider’s broadest gauge of the world’s stock markets, consolidated its 6.5 per cent gains for the month.
Meanwhile, a Reuters poll of over 500 economists also showed the global economy is expected to grow at the fastest pace since 2010.