NEW YORK (MarketWatch) — The U.S. dollar soared Friday, building on big gains scored in 2014, on expectations the Federal Reserve will raise interest rates while the European Central Bank and Bank of Japan continue to loosen monetary policy in the year ahead.
The ICE dollar index DXY, +0.97% rose to 91.11, up from 90.27 in late North American trade on Wednesday and marking its highest level since March 2006, according to FactSet data. The index rose almost 13% in 2014, to mark its best yearly gain since 2005.
“We have entered ‘15 with the same themes that we ended last year, namely positive U.S. sentiment fueling U.S. dollar gains,” wrote Jeremy Stretch, strategist at CIBC in London.
Meanwhile, the euro “remains bedeviled by broad-based uncertainty as the Japanese yen remains on the defensive as the Bank of Japan maintains that they still have various tools to ease policy,” he said.
The euro kicked off 2015 on a downbeat note, falling to its lowest level versus the dollar since 2010, after European Central Bank President Mario Draghi hinted that the bank is moving closer to launching a full-scale quantitative easing program.
The shared currency EURUSD, +0.00% fell to $ 1.2001, down from $ 1.2099 on Wednesday, its lowest level since 2010.
The euro’s weakness on Friday continued a trend seen in 2014, when it lost 12.2% against the dollar on expectations the ECB will act in early 2015 to implement full-blown quantitative easing, to help avert outright deflation in the eurozone. Renewed political turmoil in Greece, which faces a snap general election in January, is also weighing on the shared currency.
Draghi spoke about low inflation in an interview with German newspaper Handelsblatt, published on Friday, in which he said the eurozone remains in danger of falling into a downward spiral of declining consumer prices.
“The risk that we do not fulfill our mandate of price stability is higher than six months ago,” he said in the interview.
To fight off the risk of deflation, the central bank is therefore preparing to “adjust the scope, pace and composition of measures at the start of 2015, should this be necessary to respond to a too-long period of low inflation,” the ECB president said.
The WSJ Dollar Index BUXX, +0.77% a wider gauge of the dollar, climbed 0.6% to 83.64, its highest level in more than 11 years. Against the Japanese yen, the greenback rose to ¥120.350 from ¥119.79 late Wednesday.
The pound GBPUSD, +0.00% changed hands at $ 1.5334, down from $ 1.5578. The Australian dollar AUDUSD, +0.00% fell to 80.84 U.S. cents, compared with 81.81 cents on Wednesday.