LONDON: The dollar surged to a four-year high against a basket of currencies and a two-year high against the euro on Tuesday after euro zone inflation fell in September, putting the greenback on track for its best quarter in six years.
The Norwegian crown was another big mover, up almost 1 percent to a three-week high of 8.1045 crowns per euro after its central bank unveiled plans to buy 250 million crowns per day in October.
The dollar index, which measures it against a basket of major currencies, has gained almost 8 percent over the last three months, the biggest quarterly gain since 2008 and a record-breaking 11 successive weeks of gains.
Many analysts believe that is the beginning of a potentially seismic shift in the financial status quo, based on expectations that the U.S. economy will outgrow its counterparts in Japan and the euro zone for years, pushing its interest rates higher.
In the flagging 18-nation European bloc, data showed inflation falling to 0.3 percent in September from 0.4 percent the previous month, even further into the European Central Bank's "danger zone" of below 1 percent, and a far cry from its target of below, but close to, 2 percent.
"The euro zone number might have been the catalyst that got things moving, but the dollar would have been higher even in the absence of the data," said Adam Cole, global head of currency strategy at RBC Capital Markets.
The euro sank below $1.26 for the first time since September 2012, hitting a low of $1.25715 on trading platform EBS, down almost 1 percent on the day.
The divergence of monetary policy between the euro zone and the United States has helped increase the spread between the two-year U.S. Treasury yield and its German Counterpart to 66 basis points, close to the widest in seven years and bolstering the appeal of the dollar.
Cole said month-end flows out of equities were also helping the dollar. The dollar index gained 0.7 percent to hit 86.207, its highest since the middle of 2010.
NORWEGIAN MOVE
Valentin Marinov, head of European currency strategy at Citi in London, said the announcement that the central Norges Bank would be selling billions of its foreign exchange reserves next month would support the Norwegian crown for now but not necessarily over the longer term.
"While the crown should remain supported by the Norges flows, the macro implications may be less supportive than it seems. In particular, the crown purchases could suggest that the Norwegian government is starting to run out of oil revenues to fund its expenditure," he said.
The Swiss franc, another ultra low-yielding currency with little prospect of inflationary pressure on the horizon, was also among the biggest losers against the dollar, down 0.8 percent at 0.9586 francs per dollar.
Some analysts had earlier cautioned that the dollar's three-month-long rally was at risk of running out of steam for now, particularly against the yen.
"It's really hard to pick a bottom, but it does look to us like it's gone a little too far, and has overshot," said Sue Trinh, senior currency strategist at RBC Capital Markets in Hong Kong.
The dollar inched up to another six-year high against the yen of 109.75 yen, and was last trading up 0.2 percent on the day at 109.70 yen, up almost 5 percent for the month.
Comments
Comments are closed for this article.