Euro rallies to three week high as optimism bolsters the single currency
The euro consolidated gains at a three-week high on Wednesday as investors grew optimistic about the single currency’s outlook with growing doubts about the prospects of the US tax plan also underpinning gains.
With growth from the economic bloc exceeding the United States in the third quarter, led by economic powerhouse Germany, investors were becoming more comfortable in holding risky assets in Europe.
“The growth story in Europe is reasserting themselves and we are starting to see some doubts creep in on the prospects of the US tax plan,” said Timothy Graf, head of macro strategy EMEA at State Street Global Markets in London.
The single currency punched through a key technical level of US$1.1734 on Tuesday and extended gains on Wednesday to rise 0.4 per cent at US$1.1853 against the dollar.
On a two-day rolling basis, the euro was set to stage its biggest rise in nearly six months.
Over the last few sessions, unhedged purchases of European stocks have picked up noticeably after declining in October.
The euro’s gains was also partially a dollar weakness story as the single currency’s gains was largely muted against the crosses, especially the Japanese yen.
The euro’s gains were also bolstered by concerns that an ambitious US tax plan may face headwinds even as financial markets have priced in more interest rate increases next year.
US Senate Republicans linked repealing a key component of Obamacare to their ambitious tax-cut plan, raising new political risks and uncertainties for the tax measure that financial markets have been monitoring closely for months.
The dollar index fell 0.3 per cent to 93.553 on Wednesday,
“The dollar is getting hit against the euro and the yen and the strong data out of Europe is definitely a factor with some investors bailing out of the long dollar trade,” said Alvin Tan, an FX strategist at Societe Generale in London.