The dollar closed the week about 1.5% lower against the euro Friday, snapping three weeks of gains.
The bulk of the dollar’s losses occurred after Federal Reserve policy makers said that they expect to begin raising interest rates later in the year—and more gradually—than the market expected.
The surprise announcement sparked a massive short-covering rally in the euro, forcing investors who had shorted the currency to buy back the single currency and cover their positions.
The euro EURUSD, +1.50% traded at $1.0821, compared with $1.0668 Thursday.
Investors continued buying the single currency on Friday, after a slight dip Thursday, as expectations that the Fed will leave rates lower for longer emerged as the primary driver behind trading, said Josh O’Byrne, a G-10 FX strategist with Citigroup in London.
Looking ahead, Matthew Weller, senior technical analyst at Forex.com, said that the euro’s moves represented a correction from oversold territory, and that it could continue its push toward $1.04 next week.
Others, including analysts at HSBC, said the dollar’s rally may soon be over.
The dollar had drifted higher Thursday before turning sharply lower around 10 a.m. Eastern.
The market has mostly ignored the back-and-forth between German and Greek officials over whether Greece will receive its next installment of bailout funds. Instead, trading has been primarily driven by Fed expectations, O’Byrne said.
In other currencies, the Canadian dollar traded higher against the buck, despite abysmal February Canadian retail-sales figures, which showed a sharp decline in consumption. A gauge of core inflation released Friday met analyst expectations.
The loonie CADUSD, +1.31% the Canadian dollar, traded at 79.72 cents, compared with 78.71 cents Thursday, as a rebound in crude-oil prices helped support the loonie, said Dean Popplewell, vice president of currency analysis at Oanda, helping it shrug off weak Canadian retail-sales data.
Popplewell added that next week’s event risk for the dollar-loonie pair will focus on a speech by Bank of Canada Gov. Stephen Poloz at the Canadian-U.K. Chamber of Commerce in London Thursday.
The ICE U.S. Dollar Index DXY, -1.28% a measure of the dollar’s strength against six rival currencies, finished the week down 2.4% at 97.6000.
Source: MarketWatch
