NEW YORK: The dollar jumped on Thursday to fresh highs against other major currencies as investors betting European and American monetary policies are parting ways knocked the euro to an almost two-year low against the U.S. currency.
The euro fell as far as $1.26955 on trading platform EBS, its lowest since November 2012. This helped push the dollar index, which measures the greenback against a basket of major currencies, to a four-year high of 85.485.
Selling in the euro, which was last off 0.5 percent against the dollar at $1.272, quickened after the shared currency sank past $1.2750, a support level which had stopped declines four times over the past 18 months, according to Boris Schlossberg, managing director at BK Asset Management in New York.
"The sentiment towards the unit remains extremely negative as markets are beginning to appreciate the divergence between U.S. and European monetary policies," Schlossberg told clients.
A gap in bond yields between 10-year U.S. Treasuries and German Bunds, the euro zone benchmark, traded near 15-year highs, luring investors to buy dollars on expectations of higher U.S. interest rates.
As the U.S. economy picks up, the Federal Reserve is likely to next month end its bond-buying, introduced under a quantitative easing (QE) policy to tackle the financial crisis, and will probably begin raising the cost of borrowing next year.
By contrast, the European Central Bank is likely to ease its ultra-loose monetary policy further, and may resort to buying government debt to revive a stuttering euro zone economy and avert a lapse into deflation. So far, the euro's weakness has not led to protests from policymakers across the world, given they are aware the ECB has few other alternatives other than a weaker currency to bolster the economy.
The dollar is on track for its 11th successive weekly rise, something it has not achieved for four decades, in sharp contrast to prospects for the euro and the yen. The Bank of Japan is likewise grappling with a flagging economy which it is trying to pull out deflation.
ECB President Mario Draghi has stoked expectations of further action to revive the region's economy.
He told Lithuanian business daily Verslo Zinios that the ECB, which meets next week, was ready to use additional unconventional instruments or change the size of current asset purchase programmes if it became necessary to address risks of very low inflation.
The dollar was also up 0.2 percent against the Japanese yen at 109.20 yen.
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