The euro fell against the dollar on Tuesday, leaving the single currency on track for its worst quarter ever as investors bet on an increasingly divergent monetary policy outlook between the euro zone and the United States.
The euro has fallen almost 11 per cent against the greenback since the start of January. Its losses have been driven by the European Central Bank’s launch of a €1.1-trillion quantitative easing programme and expectations the US Federal Reserve will start hiking interest rates this year.
On Tuesday, the euro was down 0.7 per cent against the greenback at $1.0760, heading back after a two-week rally towards a 12-year low of $1.0457 touched this month.
Flash euro zone inflation data due at 0900 GMT, expected to show a 0.1 per cent year-on-year fall in consumer prices compared with a 0.3 per cent drop in February, could provide the single currency with some near-term direction, traders said.
But Stephen Gallo, European head of FX strategy at BMO Capital Markets in London, said the euro/dollar pair would be more dependent on US data, specifically non-farm payrolls numbers due on Friday.
“While the data in the euro zone have turned up and forward-looking indicators have turned up, it’s still a QE currency and for the time being even if the data are a little weaker in the US, the dollar is not a QE currency,’’ he said.
‘So, there’s going to be limited ability for the euro to rally even as the economic data to turn upward.
The common currency has also had its worst quarter ever against the ECB’s trade-weighted basket of currencies, falling around 8 per cent since the start of the year.
Dollar rally
And helped by its gains against the euro, the dollar was on track for its best quarter since 2008 against a basket of major currencies with 9 per cent of gains, boosted as the Fed moves towards raising interest rates while most other major central banks are loosening monetary policy.
Against the yen, the dollar edged up 0.1 per cent to 120.17 yen, holding firm after having gained 0.8 per cent on Monday for its biggest one-day rise in more than a month.
The dollar is likely to trade in a 118 yen to 122 yen range for a while, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.
“The (dollar’s) topside will probably be limited,’’ Okagawa said, adding that a recent drop in US bond yields may help temper the greenback’s gains versus the yen for now.