The U.S. dollar hit fresh lows on Wednesday after U.S. Treasury Secretary Steven Mnuchin said he welcomed its weakness and figures showed that the euro zone economy started the year at its strongest pace in over a decade.
Fear of protectionism from the world’s largest economy had already pushed the greenback lower, but this move was given another push by Mnuchin’s remarks at the annual Davos summit of business and political leaders.
Meanwhile euro zone businesses had a much better start to 2018 than anyone polled by Reuters expected, ramping up activity at the fastest rate since the middle of 2006, a survey showed on Wednesday.
The euro hit a three-year high of $1.2345, the dollar fell below 110.00 yen for the first time since September and hit new three-year lows on a trade-weighted basis, while sterling was at its highest level against the greenback since the Brexit referendum vote in June 2016.
U.S. President Donald Trump is due to speak Friday at the World Economic Forum in Davos, Switzerland, and investors are concerned he will use the speech to signal a more protectionist policy stance.
“It looks as if U.S. politics are indeed affecting the currency market, especially as they start to affect trade policy,” said Marshall Gittler, chief strategist at ACLS Global, pointing to recently-introduced import tariffs as an example.
Trump slapped steep tariffs on imported washing machines and solar panels on Monday, giving a boost to Whirlpool Corp and dealing a setback to the renewable energy industry in the first of several potential trade restrictions.
Fresh signs of growth elsewhere in the developed world provided compelling alternatives for investors worried about the greenback.
Meanwhile the euro EUR= surged to a fresh three-year high of $1.2345 ahead of Thursday’s European Central Bank meeting, which is in focus following recent commentary that the central bank could change its policy guidance early this year.
This after the euro zone’s economy outpaced that of the U.S. in 2017 and shows further signs of strength in the New Year.