Euro Holds at Two-Year High as Markets Reprice Inflation and Political Risks

The euro held its ground at a two-year high against the U.S. dollar Friday as the greenback tumbled amid reprots that Donald Trump’s legal team may look to allow the President to pardon himself amid ongoing probes into Russia’s election meddling.

The euro has gained around 6% against the dollar since late last month when European Central Bank President Mario Draghi told an audience of central bankers an economists in Sintra, Portugal, that the threat of deflation is gone and “reflationary forces” allowed him to be more confident that consumer price pressures would soon resurface. 

The speech ignited a raft of similar signalling from global central bankers that the so-called “era of cheap money” may be coming to an end, particularly in Europe.

Benchmark 10-year German government bonds, known as bunds, have seen yields rise 20 basis points to 0.5% since then while the single currency has gone from 1.0911 to 1.1650 in late Friday trading as investors re-priced inflation risks in both the region’s biggest economy and the broader Eurozone. 

In fact, reference to the euro’s recent gains sent the currency higher again Thursday as investors bet that Draghi and his colleagues are pleased with the advances and the faith that investors are showing in the region’s broader recovery.

“The repricing of the exchange rate has received some attention during the various exchanges of views, and in various ways,” Draghi said. “That’s been something that, just as I said, has received some attention.”

Friday’s advance was helped by a New York Times and Washington Post report that Trump’s team is “scouring” the personal and professional backgrounds of investigators working for Special Counsel Robert Mueller in an effort to thwart his expanding probe into alleged links between Russia and the President’s business empire.

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