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The single currency's break below its 2015 lows came after the
U.S. Federal Reserve hinted that interest rates could rise
faster in 2017 than investors had been anticipating.
The euro had managed to stay above those levels in Asian and
early European trading but took another lurch lower as dealers
arrived at their desks in New York. Just after 1200 GMT, it hit
as low as $1.04055 <EUR=>, down 1.2 percent on the day, leaving
it around 2.5 cents lower than before the Fed statement late on
Wednesday.
A 25-basis point rate hike also announced by the Fed had been
widely expected by financial markets; it was its signal that
rates were likely to rise three times in 2017 - up from twice at
the Fed's September meeting - that investors latched onto and
drove the greenback higher. http://tmsnrt.rs/2gsUVwB
"This has been something that the market hadn’t expected. We
hadn't expected a hawkish message from the Fed and we hadn’t
expected this kind of dollar strength either," said Barclays
currency strategist Hamish Pepper, in London.
"Our thesis at the beginning of the week was that the Fed would
come and go and it would be a relatively priced event… In the
context of investors with already long dollar positions, and
noting that the dollar is already quite expensive and we’re
going into year end, it seemed that now was a good time to
reduce some dollar longs. But we've seen the opposite of that."
Barclays expects the euro to reach parity with the dollar by the
third quarter of 2017 and then to fall below $1, while JP Morgan
Asset Management reckons the two currencies will become equal in
the first quarter of next year.
Against the yen, the greenback surged as much as 1.5 percent to
hit 118.66 yen <JPY=>, its strongest since February. The dollar
is on track for easily its strongest quarter against the
Japanese currency in over 20 years, after an almost 17 percent
climb since the start of October.
Against a basket of major currencies the dollar rose 1.3 percent
to a 14-year high of 103.16 <.DXY>.
The Fed's policy meeting was the first since the U.S. election
victory of Donald Trump, who investors expect to drive up
inflation and boost growth with a program of huge fiscal
expansion.
At least five of 17 Fed policymakers appeared to have boosted
their interest rate outlook since September, according to the
new "dot plot" of rate projections. But not all traders and
analysts viewed the Fed's statement as hawkish.
"The macroeconomic forecast is unchanged...and the dots have
shifted only very slightly – the median dots went up by 25 basis
points but the average only went up 6 basis points," said UBS
Wealth Management's head of currency strategy, Thomas Flury, in
Zurich.
(Additional reporting by Abhinav Ramnarayan in London and
Shinishi Saoshiro in Tokyo)
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