Euro sinks more than 3% vs. buck for 2nd week in a row

The euro lost more than 3% of its value against the buck for the second straight week Friday, as the dollar’s eight-month rally resumed.

Traders ignored a slate of weak economic data out of the U.S. That includes a report from the Commerce Department which showed that retail sales fell for the third-straight month — a sign that optimism over the Federal Reserve’s two-day monetary policy meeting, set to begin Tuesday, has reached a fever pitch, said Matt Weller, senior technical analyst at Forex.com.

Specifically, traders expect the Fed to remove phrasing from its monetary policy statement saying it can be “patient” before raising the Fed funds rate, its benchmark interest rate, for the first time since 2006.

The market would interpret such a move as a sign that the Fed could raise rates as early as its June monetary policy meeting.

The euro EURUSD, -1.32% traded as low as $1.0465, its weakest level since January 2003, while the pound GBPUSD, -0.94% traded as low as $1.4700, its lowest level since June 2010, before both currencies staged a slight recovery. The euro traded at $1.0634 late Thursday, while the pound traded at $1.4849.

Goldman Sach’s Chief Forex Strategist Robin Brooks slashed his forecast for the shared currency, saying he expects it to hit parity with the dollar in September.

The shared currency’s losses pushed the ICE U.S. Dollar Index to close above the 100-level for the first time since March 2003. The dollar’s relative value against the euro comprises more than half of the index’s value.

The ICE U.S. Dollar Index DXY, +0.91% a measure of the dollar’s strength against a basket of six currencies, was up 0.76% to 100.1900 in recent trade.

In other currencies, Jameel Ahmad, chief market analyst at FXTM, said that the pace of the pound’s losses over the past three weeks has taken traders by surprise. he attributed its decline primarily to investors’ worries over the outcome of the coming U.K. general election in May.

“There was so much volatility when the Scottish referendum happened a few months ago, investors are being tentative toward the pound and closing out their positions. They don’t want to see the volatility we saw in the week leading up to the vote,” Ahmad said.

The pound dropped from about $1.6600 to $1.6000 in the week leading up to the referendum, which was held on Sept. 18.

Diverging monetary-policy trends between the U.S. and the rest of the global economy have been the biggest driver of the currency’s strength.

Many central banks around the globe, most notably the European Central Bank and the Bank of Japan, have instituted sizable asset-purchasing programs to stimulate growth. The Fed ended its program of asset purchases in October, and the market widely expects it to begin raising interest rates some time this year.

Source : marketwatch