The U.S. dollar extended earlier losses against major rivals on Monday, after European Central Bank President Mario Draghi said he expected European core inflation to rise, giving the euro a boost.
While harmonized European headline inflation was likely going to ba flat until 2020, there would be a “vigorous pick-up in underlying inflation,” Draghi said in introductory remarks, at a hearing on economic and monetary matters in the European Parliament.
The euro EURUSD, +0.3830% rose to $1.1807, its highest level since mid-May, compared with $1.1749 late Friday in New York. The euro’s advance pushed the U.S. dollar lower as U.S. market participants assessed the latest developments in the trade war between the U.S. and China on Monday.
The ICE U.S. Dollar Index DXY, -0.29% added on to last week’s 0.7% loss—its worst in a month—and dipped 0.3% to 93.896on Monday.
China called the U.S. a trade bully and pulled out of the next round of talks. The latest round of U.S.-imposed import tariffs on Chinese goods are due to come into effect Monday, prompting retaliation by Beijing.
The Australian dollar AUDUSD, -0.3293% weakened against its U.S. counterpart, and the pair, which market participants referred to as the “quintessential risk-off pair”, was among the worse performers in developed markets. One Aussie dollar last bought $0.7273, versus $0.7289 late Friday in New York.
The greenback bought 6.8573 yuan USDCNY, +0.0044% onshore in Beijing, little changed from Friday, and 6.8605 yuan USDCNH, +0.2219% in the offshore market, up 0.2%.
Investors were also looking ahead to the conclusion of the Federal Reserve’s two-day meeting on Wednesday, at which the central bank is expected to raise interest rates by 25 basis points. Fed-funds futures show traders have priced in a 92% chance of a rate increase.
Read: With its last easy decision, Fed will try to avoid adding fuel to the fire
“Perhaps most surprising of all was the rebound in cable which crossed above the $1.31 mark in London dealing and has not looked back,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management about the British pound GBPUSD, +0.4128%
Sterling last bought $1.3153, compared with $1.3080 late Friday in New York.
“This is despite no seeming progress on Brexit negotiations and slightly disappointing [factory orders] data,” Schlossberg added.
Last week, the European Union rejected U.K. Prime Minister Theresa May’s post-Brexit proposal, prompting May, who is facing her party’s conference this week, to say that the U.K. would prepare for the possibility of a “no deal” Brexit in March 2019. The next Brexit summit is scheduled for November.
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