SYDNEY The dollar was facing a fourth straight session of losses against the euro on Monday, as more hawkish comments on European interest rates contrasted with market pricing for a less aggressive Federal Reserve.
The euro was close to its recent nine-month peak of $1.08875, as it went ahead to $1.0870 and nearer to its recent nine-month peak of $1.0875. A break there would lead to a spike in April at $1.0936.
It was aided by European Central Bank ECB governing council member Klaas Knot, who said interest rates would rise by 50 basis points in both February and March and continue to climb in the months after.
Knot is considered a hawk among policy makers and was taken as a push back against recent reports that the ECB would scale back quarter-point moves from March.
Futures have priced out almost any chance that the Fed could move by 50 basis points next month and have steadily lowered the projected peak for rates to 4.75 per cent to 5.0 per cent, from the current 4.25 per cent to 4.50 per cent.
The investors have around 50 basis points of U.S. rate cuts priced in the second half of the year, reflecting softer data on inflation, consumer spending and housing.
Flash surveys on January manufacturing due this week are expected to show more improvement in Europe due to falling energy costs than in the United States.
Ray Attrill, head of the FX strategy at NAB, said that the U.S. has lost its global growth leadership position if most recent PMI surveys are to be believed. Since December, gas prices have fallen by 60 per cent, which has weighed on the negative terms of trade shock on the Eurozone, and has weighed on the eurozone's currency. He stated that the U.S. inflation is seen falling further and faster than the Fed's projections. The USD is going to fall much further this year under this scenario. By March, Attrill believes that the euro will reach $1.1000 and $1.1700 by the end of the year.
The Bank of England will hike by half a point to 4.0 per cent at its policy meeting next week, with markets betting that the Bank of England will hike by half a point to 4.0 per cent.
The pound was up at $1.2410 and was within striking distance of the top of $1.2435 last week.
The dollar was a bit less than a basket of currencies at 101.890 and just a whisker for its recent eight month trough of 101.510, so it was a bit less than a week ago.
The dollar has managed to stay steady on the yen after the Bank of Japan BOJ defied market pressure to reverse its ultra-easy bond control policy.
Analysts believe that the BOJ will hold the line until at least the next policy meeting in March, though one hurdle is the expected naming of a new BOJ governor in February.
The yen could climb again if the replacement is less dovish than current governor Haruhiko Kuroda.
The dollar was holding 129.40 yen for now, after last week's wild gyrations between 127.22 and 131.58.
The Bank of Canada will hold a meeting on Wednesday on interest rates, with markets leaning toward another quarter-point hike to 4.5 per cent, but that will be the end of the tightening cycle there.
The Canadian currency had bounced back from $1.3497 on Friday when local retail sales data showed that it was less weak than expected, and the Canadian currency was a bit firmer at $1.3374 per U.S. dollar.