The US dollar soared to its highest since April 2003 against a basket of currencies on Wednesday, reaching its strongest in a year against the euro, as major banks and investors debated the possibility of another move towards euro-dollar parity.
After a week-long rally driven by the post-election surge in US bond yields, some of the major banks have been sounding more cautious on the dollar’s immediate prospects.
But fuelled by expectations of an inflationary push from the administration of President-elect Donald Trump that would spur more rises in Federal Reserve interest rates, it advanced past US$1.07 per euro for the first time since December 2015.
It also rose 0.5 per cent against the yen to its highest since June, pushing the dollar index up a further 0.3 per cent to 100.53. It has gained almost 3 per cent since Trump’s election victory just over a week ago.
Notably, however, St Louis Fed chief James Bullard’s comment that it would be a surprise now if the US central bank did not raise rates next month had little impact on the market.
“Broad gains are clearly meeting more resistance as a December Fed [rise] is now 95 per cent discounted and much uncertainty still surrounds the broader direction of US economic policy under Trump,” said Adam Cole, head of G10 foreign-exchange strategy with RBC in London.
Can the dollar go to parity with the euro? Well, we are only 7 to 8 per cent away, so probably yes