The euro consolidated gains on Thursday after posting its biggest daily jump in more than six months, having cleared some key market levels after Fed minutes signaled a more cautious approach towards further rate hikes.
With the euro broadly hemmed in a $1.12-$1.15 range over the last three months, the dovish minutes gave dollar bears a further excuse to buy the euro, propelling it past a 100-day moving average, a level it hasn't traded above in more than three months.
The euro surged to a high of $1.1581 overnight, its highest level since mid-October before trimming some of its gains and settling at $1.1532, broadly steady on the day.
"This is more of a dollar bearish story causing some stop losses to be triggered around key levels rather than a rerating of the European story," said Kamal Sharma, director of G10 FX strategy at Bank of America Merrill Lynch in London.
The surge in the euro took some traders by surprise who had added some big stop losses around the $1.15 levels, forcing them to unwind their positions and prompting further euro gains. Data out of Europe has been fairly tepid. French industrial production fell more than expected in November while Swedish private sector production data was fairly flat. and
Minutes from the Fed's Dec. 18-19 meeting showed that several policymakers were in favor of the U.S. central bank keeping rates steady this year.
"This drop in the dollar is an overdue correction following a surprisingly robust few weeks despite the massive collapse in U.S. rate expectations," said Ulrich Leuchtmann, a currency strategist at Commerzbank.
China and the United States have extended trade talks in Beijing, boosting oil prices and broader sentiment.
That has lifted China's offshore yuan to its highest level since August along with recent assurances from Beijing of further fiscal boosts to the slowing economy.
The yuan has breached the key 6.8 per dollar level in both onshore and offshore trade.
Commodity currencies such as the Canadian dollar have been the biggest beneficiaries of improving risk sentiment this week. It fetched C$1.3230, hovering close to its highest level in more than a month, helped by the rebound in oil prices.
The dollar index was steady at 95.22, after losing 0.7 percent on Wednesday. It has weakened in four out of the last five sessions as traders wager that US interest rates will stay steady in 2019. (Reuters)