The dollar rose to an 8 1/2-month high against a basket of currencies on Monday as the prospect of further stimulus from the European Central Bank this week drove the euro to its lowest since April. Before the expected announcement of its joining the IMF's basket of reserve currencies, China's yuan gained around 0.3 percent offshore amid talk of intervention by Beijing to tighten the spread between on- and offshore rates.
That decision is due later, but the main focus for currency markets this week will be central bank meetings, chiefly the ECB's on Thursday, when it is expected to cut interest rates on euro deposits and extend its quantitative easing programme. By contrast, the Federal Reserve is expected to raise US rates for the first time in almost a decade later in December.
"It certainly looks like the euro will trade heavier into the ECB meeting," said a dealer with one international bank in London. "Despite the bank's efforts to push the euro lower so far, we could still see a significant knee-jerk on Thursday." The euro fell a third of a percent to $1.0565. It is down around 4 percent for the month and more than 12 percent in 2015 so far. The market is divided on how far it will fall this year towards parity with the dollar.
"Everybody knows that the ECB is going to do something and the Fed as well," said Sanjiv Shah, chief investment officer with Sun Global in London. "If it was going to go to $1, it would have gone already. Probably in the first quarter of next year we will see an attempt on parity." The dollar index added about 0.2 percent to 100.24 after earlier rising as high as 100.31, closing in on a 12-year high of 100.39 set in March. It was up more than 3 percent for the month and nearly 11 percent for the year. Soft inflation readings for the euro zone on Monday and Tuesday would strengthen expectations for ECB action at its December 3 meeting, but whatever the outcome, an easing appears to be largely factored in.
That has left much of the action in recent days in other European currencies. The Swiss franc slumped last week on speculation the Swiss National Bank would respond to ECB action by cutting deposit rates further into negative territory and may already be backing that up with intervention. Data on Monday showed sight deposits at the SNB held steady last week, offering no indication of a rise that would point to intervention. The franc weakened 0.2 percent against the dollar. Sweden's crown was the biggest gainer, jumping more than half a percent to a five-month high against the euro after gross domestic product came in twice as strong as forecast quarter-on-quarter.
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