The US dollar index has been witnessing one of the strongest sell-offs recently. The decline last week was the second in the periods between April and June. After rising to the strongest levels above 103.00, just around January, the US dollar index has been in a steady decline ever since.
The USD Index has retraced nearly 61.8% of the gains registered from the May lows of 91.92 through January highs of 103.82.
The declines in the greenback came about as central bankers convened in Portugal for a banking summit. Participants included central bank chiefs from the European Central Bank (ECB), the Bank of England (BoE), the Bank of Japan (BoJ) and the Bank of Canada (BoC).
Among the participants, ECB chief Mario Draghi and BoE governor, Mark Carney’s comments stood out.
ECB’s Draghi turns hawkish. Signals tighter policy
For a while now the markets and some members of the ECB’s governing council have been putting pressure on Draghi to begin to tighten monetary policy. At the June meeting, the ECB chief managed to balance the act.
However, during the banking summit, Mario Draghi surprised the markets with very hawkish comments. He said that the ECB could begin looking into tapering its QE program. Expectations are high that starting September, the ECB’s QE purchases could be reduced to 40 billion, from the current 60 billion euros.
The ECB’s last meeting in March saw the central bank taper its QE from 80 billion to 60 billion. The markets did not rally much on this initial taper as Draghi managed to keep the markets focused on the dovish outlook.
Continued uptick in the Eurozone’s economic recovery seems to be firmly entrenched. With the risks of a political break-up of the Eurozone now a thing of the past, investors were starting to turn bullish on the common currency.
Following Draghi’s comments, the euro surged above August 2015 highs and is now within grasp of aiming for $1.1450.
BoE Carney takes a U-turn
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