The euro broke above $1.10 on Monday as traders trimmed bets against the euro, hoping to avoid the type of brutal short squeeze that followed the European Central Bank’s December meeting when the central bank meets again later this week.
A breakdown in the historic correlation between the euro-dollar exchange rate and the spread between Treasury and German bunds suggested that the euro’s strength on Monday was largely due to shifts in short-term positioning, said Doug Borthwick, head of currency trading at Chapdelaine & Co.
Treasury yields have risen Monday while those on eurozone and Japanese debt have declined. Typically, this trading pattern would result in a stronger dollar.
The shared currency recently traded at $1.1010, little-changed from its level late Friday in New York, but off a session low of $1.0935 reached early in the day.
ECB President Mario Draghi has repeatedly hinted that the central bank would again expand its easing measures at its March meeting, which is set for Thursday.
Meanwhile, the dollar edged lower against the yen Monday, retreating back below the ¥114 level after pushing higher for most of last week.
The ICE U.S. Dollar index a measure of the currency’s strength against a basket of six rival currencies, was down 0.2% at 97.1360.