The dollar at its highest in a year against the euro

The dollar passed a new milestone on Thursday, reaching its highest level against the euro in more than a year, driven by divergent monetary policies, between a Fed expected to be firmer than expected and an ECB considered accommodative. Around 8:20 p.m. GMT, the greenback appreciated by 0.60% against the single currency, to 1.0479 per euro. It even rose to 1.0462 euros, a peak last touched in October 2023.

“When currency movements are so important, it is because we have a scissors effect”commented to AFP Marc Chandler, of Bannockburn Global Forex. On the one hand, “the American central bank (Fed) could be less inclined to cut its rates in December” facing a resumption of inflation and the image of a resilient American economy, explained the analyst. Fed Governor Michelle Bowman argued on Wednesday that “progress” on the inflation front “(seemed) to be marking time in recent months”while adding that “we are probably closer to the neutral rate than we currently think”.

Three key rate cuts expected by 2025

Operators now assign a 56% probability to a quarter-point reduction at the end of the next Fed meeting on December 17-18, compared to 72% last week, according to the CME Group estimate. . US rates are currently in the range of 4.50 to 4.75%. In the long term, the market expects three cuts in the Fed’s key rate by the end of 2025, while operators predicted six over the same period two months ago. At the same time, “it seems that the European Central Bank (ECB) is going to be more aggressive than the Fed” in its rate cuts, noted Mr. Chandler, a more accommodating position which therefore benefits the dollar. Markets are already expecting a rate cut at the next ECB meeting in December and expect the benchmark rate to fall to 2% by mid-2025.

The governor of the Banque de France, François Villeroy de Galhau, declared Thursday in Tokyo that the institution must “continue to reduce the restrictive nature of (its) monetary policy”with further rate cuts, but on “a pace determined by agile pragmatism: we retain complete optionality for our next meetings”. Furthermore, “the actions of the next American administration risk harming Europe if Donald Trump implements (the increase in) customs duties”added Mr. Chandler. The prospect of inflationary policies during Donald Trump’s second term – tariffs, tax cuts and an increase in the budget deficit – has already contributed to the explosion of the dollar.