Hawkish central bank narrative

The dollar languished near a nine-month low against a basket of currencies on Friday, bogged down by growing expectations of more hawkish monetary policies in Europe and Canada and doubts about another U.S. interest rate increase this year.

The dollar index, which measures the greenback against a basket of six major currencies, last stood at 95.598. That was near a low of around 95.53 touched this week, its lowest level since early October 2016.

The euro eased 0.1 percent to $1.1430, backing away slightly from a peak of $1.1445 set this week, the common currency’s strongest level in almost 14 months.

The euro has risen rapidly following Tuesday’s speech by European Central Bank President Mario Draghi that convinced markets the ECB was preparing to start reducing its aggressive monetary stimulus later this year.

In addition, comments from Bank of England Governor Mark Carney and two top Bank of Canada policymakers on Wednesday ramped up expectations for interest rate increases from those central banks.

“Obviously there’s a shift afoot. It really seems that there’s some coordinated effort going on out here among the G10 central banks,” said Stephen Innes, head of trading in Asia-Pacific for OANDA in Singapore, referring to the series of hawkish-sounding comments on monetary policy.

“I think what we’re seeing right now, it’s a really tempting market. So this could be more about the fact that nobody wants to miss out on the party,” Innes said, adding that the euro could add to its gains in the near term.


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Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes