The euro currency has extended its gain to a 2.5-year high versus the dollar on Monday, Aug. 28.
The euro rose 0.1 percent higher at $1.19 after reaching $1.2, which was its highest since January 2015. The surge happened after the European Central Bank president Mario Draghi did not talk about the currency’s strength during his Jackson Hole speech on Friday. Traders took this as an indication that Draghi is not worried about the currency’s recent appreciation.
Moreover, investors assumed strong euro as Janet Yellen of the Federal Reserve Chair also made no reference to any possible cuts in the balance sheet.
“I don’t think expectations were that high in the market that Draghi would talk down the euro at Jackson Hole. Even if he had done so, the euro likely would have risen anyway,” Masafumi Yamamoto, chief foreign exchange strategist at Mizuho Securities, said in a report.
Yamamoto added: “A strong euro cannot be a source of complaint for a region like the euro zone which is blessed with a large current account surplus, a steady economy and is not threatened by deflation. It was thus an opportunity for speculators to buy the euro without much concern.”
The price is currently consolidating, and continued increases amidst political instability in the U.S. may be expected with the possibility that debt ceiling negotiations will fail, FXStreet reports. Moreover, the Trump administration is not getting the enough support to implement the pledged reforms.
Investors will be focused on the European Central Bank and this will keep the euro currency above other currencies at least for the short term. Investors are also expecting the European Central Bank to announce plans of reducing debt-buying during its policy meeting in September.
In spite of the strengthening of the euro, European shares slumped Monday. London was closed for a holiday, therefore reducing activity. But euro zone blue chips saw a decline of 0.7 percent to a one-week low, while the European STOXX 600 index dropped 0.6 percent.
Financials and industrials sectors dragged the euro zone blue chip index down, while all other sectors suffered losses. However, shares of telecom company Altice were among the few gainers, with an increase of 1 percent, as investors positively received the news of a share buyback of 1 billion euro.
Gains if the European equity markets were capped by a rise in the euro currency last week. The German DAX closed the week up to 0.02 percent, France’s CAC dropped 0.17 percent, and the Euro Stoxx slid 0.13 percent.
According to Market Realist, the European economy’s continued improvement and the increased support in the reduction of monetary policy from members of the European Central Bank are among the factors that will keep the strong demand for the euro currency. The next central bank meeting is scheduled two weeks from now.
Meanwhile, world stock markets started the trading week generally lower. U.S. stock indexes are anticipating weaker openings.
Gold prices also climbed above the key $1,300 level during overnight trading. The gold market bulls are supported by the drop in U.S. dollar index. The U.S. dollar index is expected to hit a multi-month low.
Nymex oil prices slumped on Monday. This is due in part to the hurricane that flooded Houston, Texas and the surrounding areas, damaging a gasoline refinery. The calamity may have an effect on gasoline supplies in the U.S. and the demand for crude oil in the weeks to come.
For now, markets are focusing on the commotion in Washington and the conflict over debt ceiling increase, which could greatly affect dollar assets.