The euro rally continues

Euro advanced Thursday morning, hitting 14-month highs against the US dollar.

Earlier this week ECB President Mario Draghi’s comments on higher inflation caused a strong euro rally.

Despite follow-up commentary from sources at the ECB officials said Draghi’s hawkishness was taken out of context, investors are buying the belief that tighter monetary policy is on the horizon.

Drop it like it’s hot

The number of Americans filing for unemployment benefits grew more than expected last week. Continuing jobless claims also expanded for the fourth week in a row.

USD fell for a third consecutive session to hit more than eight month lows on Thursday. The dollar index dropped to 95.8, the lowest level since October 3rd.

Concerns over Trump’s ability to implement promised pro-growth reforms continue to weigh on the US outlook. Meanwhile, the UK and EU have seen more aggressive rhetoric on monetary policy this week, signaling that they are preparing to scale back their stimulus programs. This highlights a policy divergence that is casting a shadow on the US outlook, where traction on tightening policy has been slow to pick up despite a strong labor market.

We continue to see investors taking risk-on trades. This is providing a reprieve for the dollar against the yen, with the dollar up over half a percent against JPY this morning.

Shining shining sterling

GBP to USD – commonly referred to as ‘cable’ – climbed above 1.30 for the first time in five weeks.

Hawkish comments from yet another policymaker are fueling the pound’s ascent. Bank of England Governor Mark Carney said “some removal of monetary stimulus is likely to become necessary” even if they’re not ready to raise rates quite yet.

Investors are pricing in the first rate hike January / February 2018.

While his overall comments do not read as a strong shift in the BoE’s policy outlook, if policymakers continue to push this kind of language investors could easily shift towards the view that a rate rise is imminent.

EURUSD: Euro hit a 14-month high amidst the belief that the ECB is ready to scale back their economic stimulus.

GBPUSD: Sterling recovered from a misstep yesterday to climb back above 1.30 for the first time in weeks.

AUDUSD: Aussie dollar higher as the dollar is weighed down by political concerns.

USDCAD: Canadian dollar continues to push against the USD, pushing year-to-date lows for USD/CAD.

USDJPY: Yen remains weaker against the dollar amidst strong risk appetite – yen weaker by more than 0.5% at the time of writing.