Euro Increases as Dollar Rebound Weakens

On Friday, the euro increased more than half a percent higher as comments by the senior U.S. officials this week advocated their support for a weak dollar reverberated through currency markets.

The euro went up on Friday.

U.S. President Donald Trump stated on Thursday that he wanted a “strong dollar” opposed by the earlier comments of U.S. Treasury 

Secretary Steven Mnuchin, while some investors suspect a prolonged decline in the greenback.

“While President Trump has since said that he expects the dollar to get 'stronger and stronger', it will be hard for Washington to put the 'weak dollar' genie back in the bottle,” an FX strategist, Viraj Patel, stated.

In keeping with the rising theme of expecting more weakness in dollar, UBS Wealth Management improved its six-month forecasts for the euro and sterling to $1.28 and $1.45 respectively.

Yesterday, after U.S. President Trump stated that he wanted the dollar to be strong, the dollar pared losses against major currencies.

However, against a basket of six major currencies, the dollar last traded at 88.87 on Friday, after hitting a three-year low of roughly around 88.43. The dollar index has fallen more than 3 percent so far in January.

Market participants are also worried that U.S. President Trump may encourage more protectionist policies at a speech in Davos later in the day and at a State of the Union speech next week, policies that may end up pushing the dollar lower.

Against the euro, the dollar’s weakness was the most apparent, with the single currency increase half a percent at $1.2465 and not far away from a December 2014 high of $1.25 hit on Thursday.

With Mario Draghi, the President of the European Central Bank, declining to lean against the latest euro rally and instead signaling that economic data pointed to “solid and broad” growth, some investors were encouraged to push the currency higher.

The President of the European Central Bank also warned that the rise in the euro was a source of hesitation and stated that the ECB might have to review its strategy if the U.S. comments on the benefits of a weaker dollar will lead to a change in monetary conditions.

“Draghi's reluctance to offer any resistance to the euro means that euro/dollar is only set to rise more in the coming months,” Manuel Oliveri, an FX strategist, said.

Meanwhile, the sterling went up 0.4 percent to $1.4191, but stayed below its peak on Thursday of $1.4346, which was the highest level of pound since the Brexit vote in June 2016.

Against the yen, the dollar held steady at 109.42 yen, staying above a four-month low of 108.50 yen struck on Thursday.

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