US dollar surges to 14-year high; will it equal €1 this year?

LONDON — The dollar soared to its highest since April 2003 against a basket of currencies on Wednesday, reaching its strongest in a year against the euro as major banks and investors debated the possibility of another move towards euro-dollar parity.

After a week-long rally driven by the post-election surge in US bond yields, some of the major banks have been sounding more cautious on the dollar’s immediate prospects.

But fuelled by expectations of an inflationary push from the administration of President-elect Donald Trump that would spur more rises in Federal Reserve interest rates, it advanced past $1.07 per euro for the first time since the start of December 2015.

It also rose half a per cent against the yen to its highest since June 1, pushing the dollar index up another 0.3 per cent to 100.53. It has gained almost three per cent since Trump’s election victory just over a week ago.

Notably, however, St Louis Fed chief James Bullard’s comment that it would be a surprise now if the US central bank did not raise rates next month had little impact on the market.

“Broad gains are clearly meeting more resistance, as a December Fed hike is now 95 per cent discounted and much uncertainty still surrounds the broader direction of US economic policy under President-elect Trump,” said Adam Cole, head of G10 FX strategy with RBC in London.

Trump’s victory has raised concern about further, potentially destabilising victories for populists in elections across Europe in the coming year, and a number of banks and traders have predicted the euro will head back towards the lows around 1.05 at which the last dollar rally stalled last year.

That also raises the prospect of another attack on parity with the single currency.

“Can the dollar go to parity with the euro? Well, we are only 7-8 percent away so probably yes,” said Adnan Akant, head of foreign exchange at Fischer Francis Trees and Watts, a New York based institutional currency manager owned by BNP Paribas.

“Under Trump, we are looking at fiscal policy divergence [with Europe and Japan] which should be very positive for the dollar. Protectionism is a risk, but if that is focused on emerging markets, it may perversely also be a dollar positive.” — Reuters