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FOREX-Dovish Fed hands euro best weekly gains in 18 months

* Market consensus has all but ruled out June hike to U.S. rates

* Euro on track for best weekly performance since Sept 2013

* BNP Paribas revises down euro/dollar forecasts

By Jemima Kelly

LONDON, March 20 (Reuters) – The euro inched up against the dollar on Friday and was on track for its best weekly performance in 18 months, boosted by a sell-off in the greenback after the U.S. Federal sounded a cautious tone on interest rates.

The greenback plunged across the board on Wednesday after the Fed downgraded its economic growth and inflation projections, signalling it is in no rush to push borrowing costs to more normal levels and pouring cold water on investor expectations of a June rate hike.

Having dived to as low as 96.628 against a basket of major currencies in the wake of the Fed, the dollar was trading at 98.952 on Friday, down 0.1 percent on the day on track for its first week of falls in five.

The euro was 0.2 percent higher against the dollar at $ 1.0683, well below Wednesday’s high above $ 1.10 but still leaving the single currency on track for its best weekly performance since September 2013 with a 1.7 percent rise.

“The FOMC announcement was, on margin, more dovish than expected. So the weakness that we saw in the dollar in the aftermath of that translated into some rebounds in euro/dollar,” said Phyllis Papadavid, senior global FX strategist at BNP Paribas in London.

Papadavid said she expected the euro downtrend to resume, and BNP Paribas yesterday revised down their euro forecasts to parity with the dollar by the end of this year from $ 1.05 previously and to $ 0.95 by the second quarter of 2016.

But an overwhelming consensus among major banks that the euro will continue to fall against the dollar found a doubter on Thursday. In contrast to a slew of downward euro revisions, British bank HSBC on Thurday revised up its forecast for the single currency to $ 1.20 by 2017.

Against the yen, the dollar was 0.1 percent higher at 120.88 yen, comfortably above its Wednesday post-Fed low of 119.29.

“Pressure will remain on the yen as before. Today, there is a shortage of fresh trading incentives, so the yen has come back a bit,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank in Tokyo.

The Bank of Japan stood pat on policy earlier this week, as it has every month since expanding its massive stimulus programme in October last year.

(Additional reporting by Lisa Twaronite in Tokyo; Editing by Toby Chopra)

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