Dollar Extends Gains against the Euro on Policy Divergence

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Dollar Extends Gains against the Euro on Policy DivergenceThe dollar touched its highest level in 11 months against the euro as European bonds and stocks surged on possibility of more economic stimulus.

The dollar traded 0.4 percent higher against the euro at $1.3194 as of 9 a.m., New York time, the highest level since September 9. The Stoxx Europe 600 Index gained 7 percent in a sluggish trading as U.K. markets were shut for a bank holiday. S& P’s 500 Index futures gained 0.4 percent.

Bank of Japan head Haruhiko Kuroda and his European Central Bank counterpart Mario Draghi both signaled the possibility of further stimulus measures to boost growth during the annual gathering of world’s central bankers at Jackson Hole, Wyoming.  Federal Reserve Chair Janet Yellen acknowledged that some slack still exists in the labor markets, though interest rates may be increased sooner than expected if performance continues to beat estimates.

“The messages from Yellen and Draghi solidify a market view on policy divergence between the Fed and the ECB,” Peter Rosenstreich, a Gland, Switzerland-based chief foreign-exchange analyst at Swissquote Bank SA, told Bloomberg News. “There were some holdouts in the market who didn’t quite believe that Yellen is ready for a tighter policy and Draghi is ready to put forward any significant broad-based purchases. What we heard over the weekend is that yes, these are on the table.”

The Italian 10-year rate fell by up to 14 basis points to 2.44 percent, the weakest level since 1993. Yields on the German 5-year bunds plunged five basis points to 0.17 percent after earlier touching 0.164 percent, while yields on Belgium’s two-year securities slid past zero for the first time. Yield on the 10-year U.S. Treasury fell two basis points to 2.38 percent. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com