The Australian dollar trended lower through the majority of last week, with the risk-sensitive currency struggling to attract support as a gloomy market mood prevailed through most of the session.
- Euro higher on US dollar weakness
- EUR/USD hits 2 ½ year high
- EUR Monthly lows: £0.87, $1.13, AU$1.44, NZ$1.55, C$1.44
- EUR Monthly highs: £0.89, $1.18, AU$1.50, NZ$1.58, C$1.48
The common currency was able to surge to a 2 ½ year high against the US dollar in July and remain in the region of an 8-month high against the pound.
So what were the main causes of the euro’s gains? Well, the European Central Bank (ECB) set a rocket under EUR with its latest interest rate decision, while the currency also benefited from broad-based weakness in the US dollar.
Although the ECB decision didn’t contain any surprises in terms of immediate adjustments to monetary policy, hints that it would begin discussing tapering quantitative easing in the autumn were enough to send the euro soaring.
Meanwhile, the US dollar softened across the board after the latest Federal Reserve announcement reduced the odds of a third rate hike taking place in 2017 by stressing policymakers’ concerns about the low level of domestic inflation. President Donald Trump’s failure to implement any of his planned tax or spending reforms were also responsible for USD weakness.
In the weeks ahead any reports which support the ECB’s intention to begin winding down QE will be euro-supportive, but the common currency could move away from its best levels on any indications that the Eurozone economy isn’t strong enough to withstand a reduction in stimulus.
News from the US will also be key, with further dramas in the White House having the potential to keep the US dollar depressed and, by extension, euro exchange rates elevated.
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