Euro Back 'Sentenced', US Dollar Appears Mighty

United States Dollar (US) back strengthened after investors again turned their attention to Europe. Market participants are now looking forward to a meeting of the European Central Bank (ECB) in Sintra, Portugal, to see the direction of the Blue Continent's monetary policy forward.

On Tuesday (19/06/2018) at 14:38 GMT, the Dollar Index (which measures the position of the US dollar in the presence of six major currencies) rose 0.15%. But since the beginning of this index tends to weaken.

The main US dollar strengthened against the euro. In the face of the euro, the greenback rose sharply by 0.32%. The reason is that investors are now beginning to re-highlight Europe.

The ECB is scheduled to hold a forum in Sintra on June 19-20. ECB officials such as President Mario Draghi and Chief Economist Michael Praet are scheduled to attend this event. Not just from Europe, Bank of Japan (BoJ) officials to the Federal Reserve (The Fed) will also be present.

However, market participants seem to have negative ECB rate. At a June edition meeting held last week, the ECB decided to end its monetary stimulus program by the end of 2018, and began reducing its dose in September this year.

Until now, the ECB is still buying securities worth 30 billion euros (Rp 490.62 trillion) every month. But starting September, its value will be reduced by half by the end of the year.

Reduction of stimulus or tax reduction is the entrance to monetary tightening through an increase in interest rates. The ECB suggests that rate hikes are likely to be reached by the middle of next year, but still gray.

"The board expects policy rates to remain at current levels at least until the summer of 2019. Interest rates will be maintained for as long as it takes," the ECB said in its official statement.

The last sentence is not in line with market expectations. Investors are expecting at least the ECB to be bolder and start by firmly executing interest rate hikes by the middle of next year. Now, investors expect the new ECB to raise interest rates in September 2019, retreating three months from the previous projection.

Therefore, market participants assess the forum in Sintra only confirm the ECB rhetoric, as happened last week. This low market expectation is realized by releasing the euro in the financial markets. Euro once again 'punished' by the market.

The flow of capital still leads to the US so as to make the greenback strong again. Not only in the forex market, capital flows also go into US dollar-based assets.

For example bonds. At 14:53, the yield on the 10-year US Treasury bond was at 2.8657%. Decreased compared to the previous day 2.926%. The resulting decline means that the price of the instrument increases, a sign that investor interest is on the rise.