Deutsche Bank on Wednesday morning abandoned calls for the dollar to rise towards parity with the euro. In a research note to its clients, Deutsche Bank revised its EUR/USD outlook to $1.16 or higher by the end of this year from a previous $1.03.
"Our main message is that the euro is likely to be the key vehicle via which financial conditions in the euro area will be tightened," Deutsche Bank's FX Strategist George Saravelos said in the research note.
This comes after the single currency jumped to a nine-day high against the dollar in Tuesday's trade and extended gains as ECB (European Central Bank) President Mario Draghi addressed speculation around the unwinding of its asset-purchase program. Addressing the audience at the ECB forum in Sintra on Tuesday, Draghi said any change in the ECB's policy would be gradual as the euro zone economy still needs monetary support.
"A constant policy stance will become more accommodative, and the central bank can accompany the recovery by adjusting the parameters of its policy instruments – not in order to tighten the policy stance but to keep it broadly unchanged," Draghi said.
The hawkish tone saw the euro surging against a number of currencies. While it hit a year-high against the dollar, the single currency jumped to a seven-month high against sterling. The euro was trading at $1.1334 against the dollar at 2:00 p.m. London time. While the current move in the euro is attributed to the comments made by Draghi, a number of analysts point to the monetary policy divergence between the U.S. Federal Reserve and the ECB as a reason for the currency pair's move.
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