Reuters/London


The dollar is on track for its best quarterly performance since 2008 while the euro is set for its worst ever three months, reflecting a divergence in monetary policies between the US and the eurozone.
The European Central Bank unleashed a 1tn euro bond buying programme in March to boost inflation in the eurozone while the Federal Reserve is expected to start tightening policy later this year. Those interest rate differentials work in favour of US Treasuries and have boosted the greenback.
The dollar index is up 9% in the first three months of 2015, its best quarterly performance since July to September 2008, while the euro is down 11% during the same period – the worst quarterly show in its history.
“First-quarter expectations were focused on cyclical divergence between the US and rest of the world, and especially Europe,” said Steve Englander, global head of G10 FX strategy at Citi. He added that investors were growing impatient with the divergence theme, but had not yet found a replacement for the second quarter. Nevertheless, the ECB’s quantitative easing programme triggered talk of a “currency war” in Europe.
Central banks from Switzerland to Sweden moved to prevent their currencies from rising sharply against the euro, with the Swiss National Bank shocking markets in January by abandoning its three-year-old cap on the franc against the euro.
The franc soared 40%, the biggest one-day move in a major currency in the era of floating exchange rates, on the day the SNB dropped the cap, before weakening in subsequent weeks. It remains on track for its best quarterly performance in three decades, according to Reuters charts.
Denmark’s central bank also intervened in the currency market to drive down the Danish crown, which hit its highest since 2004. Denmark imposed negative interest rates of -0.75%, on a par with the Swiss, and spent billions of dollars to weaken the crown.
Those actions saw the crown post its worst quarterly performance in more than 15 years.
Sweden’s central bank also adopted quantitative easing – albeit on a smaller scale than the ECB. Despite that, the Swedish crown was on track for its best quarterly performance in two years.


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