Euro hits 3-year high as Europe leads global optimism

The euro was up 0.5% at $1.2258 this afternoon after hitting a high of almost $1.23

The euro rose to a three-year high against the dollar today, fuelled by growing economic optimism in the euro zone and expectations that the European Central Bank will tighten monetary policy.

The currency's rise against a broadly weakened dollar has been particularly marked, with the euro zone's improving economic outlook spurring more investors to rebalance their portfolios towards the region.

Speculators boosted net long positions in the euro to a record high in the week to 12 January, according to the latest futures data.

Against a basket of currencies, the euro is at its highest since late 2014.

The dollar has weakened as markets grow increasingly confident that a global recovery would outpace US growth and prompt other major central banks led by the ECB to unwind its easy policy quicker than market expectations.

Measured against a basket of currencies, the dollar was down 0.5% today, its lowest since early 2015.

Analysts said the market was repricing the euro to account for the perceived change in the ECB's monetary stance and, with fair value of the euro estimated at between $1.25 and $1.30, the single currency had further room to rise.

The euro was up 0.71% at $1.2272 by 5.30pm Irish time after hitting a high of almost $1.23, adding to gains made last week after the ECB said it could revisit its communication stance in early 2018.

That heightened expectations that policymakers were preparing to reduce the stimulus programme.

Hopes that a pro-European governing coalition is set to form in Germany have also boosted confidence in the continent.

With the euro at three-year highs, some analysts said that its strength would soon worry the ECB, encouraging it to talk down the currency.

The British pound continued to rack up highs not seen since the June 2016 vote to leave the European Union.

The pound added to Friday's surge - triggered by a report that two EU member states wanted Britain to remain as close as possible to the EU after its exit - and traded as high as $1.3819.