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Euro logs best quarter against the dollar since 2010

Growing signs that the European Central Bank could put an end to an era of easy money by raising interest rates helped power the euro to its best quarter in nearly seven years.

The single currency tied with the Danish krone as the best performing major currency vis -a-vis the greenback over the past three months, with both notching a 7.2 per cent advance. That makes it the euro’s biggest quarterly gain since the third quarter of 2010.

Relief over the rejection of nationalist, anti-EU candidates in France, Austria and the Netherlands helped kick-start the euro’s rally in April and May. The gains gathered pace this month following comments by ECB chief Mario Draghi, who said the eurozone was headed towards “reflation”. The hawkish remarks suggest the central bank’s monetary policy could become less accommodating from next year and prompted yield seekers to start piling in on euro-denominated assets.

The euro’s strong quarter takes its year-to-date gains against the dollar to 8.6 per cent, putting it just behind the Mexican peso as this year’s top-performing currency.

After a record-breaking first quarter rally, the Mexican peso has continued to cement its status as this year’s comeback kid. The currency tacked on another 3.2 per cent per cent against the dollar during the second quarter and is up 14.3 per cent against the greenback this year.

The peso suffered a dramatic collapse in the wake of Donald Trump’s election victory, slumping to record low of 22.03 to the dollar in mid-January. But since then, the currency has been in fight-back mode as Mr Trump’s campaign promises to tear up free trade agreements and build a wall on the US-Mexican border have taken a back seat. Mexico’s export-driven economy has also proved to be more resilient than expected.

In a note titled: “The return of the super peso”, analysts at Nomura reckon that the peso will comfortably trade below the 18-per-dollar mark going forward as both domestic political risks and concerns over Nafta ease.

“Nafta is unlikely to impact Mexico negatively,” Nomura said. “We base our opinion on the fact that US Commerce secretary Wilbur Ross has stated that he wants to wrap up negotiations before the year-end. This suggests that the US government does not intend to embark on a broad renegotiation of the treaty.”