Euro Falls as Jobless Claims Support the Dollar’s Recovery

The euro fell on Monday. Last week, it followed a rally on the European Central Bank’s hawkish shift. Speculators flocked to the dollar. They hoped that a boost in U.S. job creation in January would lead to quicker Fed rate hikes.

After reaching its highest level since mid-January on Friday, the European common currency fell 0.2 % to $1.1425. The gains were fueled by the ECB’s hawkish shift, which caused markets to push the date of eurozone rate hikes ahead, sending bond rates significantly higher.

“President [Christine] Lagarde’s strong indication that the door to rate rises later this year has been opened is a major game-changer for the foreign currency market,” said analyst Lee Hardman. “Over the last year, the EUR has underperformed on expectations that the ECB will retain its accommodative monetary policy while the BoE and Fed tighten,” Hardman said, anticipating those market players will now reduce their short euro financing holdings.

Rate Expectations

In an interview, ECB policymaker Martins Kazaks pushed back against market expectations for a rate rise as soon as July. He predicted that the bank would finish its stimulus program sooner than expected but would not raise its key interest rate in July.

The dollar has found support, aided by the United States. After considerably better-than-expected job news on Friday, Treasury rates soared. Markets now expect the Fed to raise rates by a full 50 basis points in March, with a fair likelihood that rates will hit 1.5 % by the end of the year.

The dollar index was ultimately steady on the day at 95.444. However, it was still higher than the lows of 95.136 seen last week before the employment report. After substantially rising in the aftermath of the employment report, two-year rates were holding steady, momentarily touching a new two-year high of 1.33 %. The yen increased 0.1 % to 115.14 per dollar. Sterling rose 0.1 % to $1.3537, both in the center of their current ranges.

On Sunday, Klaas Knot, the president of the Dutch Central Bank and one of the ECB’s more hawkish members, indicated he expected a rise in the fourth quarter of this year. After an 11% increase late Friday, Bitcoin jumped 0.45 % to $41,602.

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