The strength of the euro could lead to renewed inflationary pressures.
The dollar continues to rise against a basket of currencies.
Kevin Warsh nominated to head the Federal Reserve
The euro fell in the European market on Monday against a basket of global currencies, continuing to move in negative territory for the second day in a row against the US dollar, under the watchful eyes of European monetary authorities, who warned that excessive rise in the euro exchange rate renews inflationary pressures in Europe.
The US dollar continues to rise in the foreign exchange market, driven by widespread investor approval of Donald Trump's nomination of Kevin Warsh to head the Federal Reserve.
Price overview
Euro exchange rate today: The euro fell against the dollar by 0.1% to ($1.1839), from today’s opening price of ($1.1851), and recorded a high of ($1.1875).
The euro ended Friday's trading down 1.05%, its second daily loss in the last three days, due to profit-taking and corrective moves from a five-year high of $1.2082.
Over the course of January, the euro rose 1.1% against the dollar, its third consecutive monthly gain, amid positive expectations about European economic growth and the assumption that European interest rates will remain stable for as long as possible this year.
European monetary authorities
The euro's rise above the $1.20 mark for the first time in five years has alarmed European monetary authorities, prompting policymakers at the European Central Bank to issue a series of warnings about the implications of the currency's strength on the path of inflation and economic growth.
Economic experts have pointed out that the strength of the euro could amplify the deflationary impact of strong Chinese exports, putting the European Central Bank out of its good position and pushing it to further reduce interest rates.
Opinions and analyses
Jeff Yu, macro strategist for Europe, the Middle East and Africa at Bank of New York, said: Although the euro/dollar exchange rate remained well above the European Central Bank’s baseline scenario last year without causing strong deflationary risks, trade uncertainty remains.
Ray Attrill, head of foreign exchange strategy at Bank of Australia, said: “I think the ECB’s statements are independent, but it is noteworthy that the $1.20 level for the euro against the dollar seems to have formed a catalyst.”
Atrell explained: “It could be argued that the movement of the EUR/USD pair, which was not very strong until recently, masks to some extent a broader strength in the performance of the euro, which in turn will be reflected in the European Central Bank’s inflation expectations.”
US dollar
The dollar index rose 0.15% on Monday, extending its gains for the second consecutive session and hitting a one-week high, reflecting the continued rise of the US currency against a basket of global currencies.
This rise comes as the market welcomed US President Donald Trump's nomination of Kevin Wroch to head the Federal Reserve, a move that boosted confidence in the direction of future monetary policy.
Expectations have increased that the US Federal Reserve will adopt a more stringent approach to combating inflation, prompting traders to increase their buying positions on the US dollar against a basket of major and minor currencies.
John Higgins, chief economist at Capital Economics, said: “The market reaction to Donald Trump’s nomination of Kevin Warsh as chairman of the Federal Reserve is broadly in line with our view that the president has made a relatively safe choice.”
Higgins added: The prevailing impression seems to be that Warsh is not someone who is completely under the president's influence, that he will not contribute to undermining the independence of the Federal Reserve, and that he will not alleviate concerns about the devaluation of the currency.
