Dollar hits highs against euro, franc after Draghi fuels QE bets

[January 03, 2015]  By Sam Forgione
 
 NEW YORK (Reuters) - The U.S. dollar hit its highest against the euro in 4-1/2 years on Friday and reached parity with the Swiss franc after comments from European Central Bank President Mario Draghi underscored the divergence between European and U.S. monetary policy.

The euro fell to $1.2002, its lowest since June 2010, after Draghi told the German financial newspaper Handelsblatt that the ECB was less likely to preserve price stability than it was six months ago, suggesting it was ready to take bolder steps on monetary stimulus early this year.

"Markets and commentators have been talking about this for ages, but to hear it from the horse's mouth has had a clear effect on the euro," said David Rodriguez, a quantitative strategist at DailyFX.com, a unit of retail FX broker FXCM in New York.

The euro zone single currency was also hurt by disappointing euro zone manufacturing data. The dollar index, which measures the greenback against a basket of six major currencies, hit a fresh nearly nine-year high of 91.131 and notched its third straight weekly gain.

The contrast between the U.S. Federal Reserve's path toward rate increases and looser policies in Europe and Japan boosted the dollar last year, and many analysts anticipate that divergence in policy to fuel a continued dollar rally in 2015.

The dollar hit parity, or equal value, with the Swiss franc for the first time in over four years. Draghi's comments put pressure on Switzerland's central bank to ease further in order to maintain a 1.20-franc-per-euro limit, said Alan Ruskin, global head of currency strategy at Deutsche Bank in New York.

The SNB imposed that limit in 2011, when the currency's strength squeezed exporters and threatened deflation. The SNB eased policy on Dec. 18, when it said it would impose an interest rate of -0.25 percent on some large deposits held by investors in francs.

The euro was last down 0.82 percent against the dollar at $1.2003. The dollar was last up 0.7 percent against the Swiss franc at 1 franc. The dollar was up 0.58 percent against the yen at 120.46 yen after hitting a more than one-week high against the Japanese currency of 120.74 yen.

Sterling hit a 17-month low of $1.5328 after data showed British manufacturing expanded less than expected in December. [GBP/]

On Wall Street, the benchmark S&P 500 stock index closed mostly flat.

(Reporting by Sam Forgione; Additional reporting by Anirban Nag in London; Editing by Jonathan Oatis and Meredith Mazzilli)

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