Euro, Euro, Euro

It will take more than anonymous ECB sources to cool the desire to bet on the euro and dump the dollar.

That’s from Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney, and it tells you pretty much everything you need to know about the mood on Thursday.

Callow is of course referring to the attempt to walk back Mario Draghi’s “we’ll look through transitory weakness in inflation” comments that hit the wires on Tuesday and set the stage for the single currency to rise to its highest level against the dollar since June of 2016.

 

 

 

As we noted on Wednesday, options traders are now the most bullish on the euro since at least before the US election.

“Many investors are tantalized by the prospect of key quarterly meetings in September producing no move from the Fed but a plan to wind down quantitative easing at the ECB,” the above mentioned Sean Callow went on to say, hinting that rate differentials could continue to compress, thus lending further support to the euro.

 

 

Draghi’s comments came at the ECB Forum on Central Banking in Sintra, Portugal, and he wasn’t the only one sounding hawkish. The BoE’s Mark Carney said Wednesday that the MPC may need to raise rates despite a weakening economy. That’s got the pound on a tear, up seven days in a row against the dollar (the longest winning streak since April 2015) to the highest since May 25:

 

 

“Carney comments have been a game-changer for shorts, which have unwound their exposure amid demand for fresh longs by leveraged names,” a London-based trader said overnight.

“It could move up toward $1.35,” Lee Hardman, a foreign-exchange strategist at MUFG in London, said on Thursday, adding that “The Bank of England is probably closer to raising rates than many people had anticipated.”