Euro leads currency rally in Asia on talk of policy tightening

The euro led a broad advance in currencies against the greenback Thursday after a string of central bankers hinted at an end to loose monetary policies that have been in place since the financial crisis.

The single currency powered to more than one-year highs Wednesday after European Central Bank boss Mario Draghi offered a more hawkish outlook for the eurozone than expected, with traders brushing off later attempts by his officials to play down his remarks.

In early Asian business the euro broke above $1.14 for the first time since June last year as markets bet the ECB, finally seeing a recovery in the eurozone economy after years of weakness, will soon begin winding down its stimulus.

“The market is confused over Draghi sending his minions to unwind his previous night’s hawkishness,” Greg McKenna, chief market strategist at AxiTrader, said.

“But the rally is actually a continuation of the buy the dip theme we consistently have seen for some time now."

The outlook from the ECB comes as several central bank bosses hint at tightening policies put in place to combat the hammering the global economy took from the financial crisis that started 10 years ago.

Sterling powered higher after Bank of England chief Mark Carney hinted at a rate hike, which took dealers by surprise and distracted them from British political uncertainty caused by this month's general election.

- Sterling rally -

The pound headed towards $1.30 for the first time in a month.

"This abrupt policy change saw chaotic price action leaving a swath of carnage in its wake. The markets have been trading GBP from the short side given the recent election results, and all the negativity surrounding Brexit," said Stephen Innes, senior trader at OANDA.

Similar comments from the head of Canada's central bank provided a boost to the country's dollar, while rising commodity prices and talk of an Australian rate lift supported the Aussie.

Other high-yielding currencies in Asia benefited from the broad dollar weakness, which comes as Donald Trump's economy-boosting agenda looks on the ropes as he struggles to push through crucial health care reform.

Asian equities markets followed Wall Street up, boosted by a recovery in technology firms and a rally in banks after the Federal Reserve agreed to plans by all 34 large US lenders seeking to provide big payouts to shareholders after passing stress tests.

Tokyo ended the morning session 0.5 percent higher, Hong Kong added 0.7 percent, Sydney jumped 0.8 percent and Seoul was 0.7 percent higher. Sydney jumped one percent, while Wellington and Taipei also posted strong gains.

- Key figures around 0230 GMT - 

Euro/dollar: UP at $1.1419 from $1.1376 at 2100 GMT

Dollar/yen: DOWN at 112.20 yen from 112.32 yen

Pound/dollar: UP at $1.2972 from $1.2926

Tokyo - Nikkei 225: UP 0.5 percent at 20,238.85 (break)

Hong Kong - Hang Seng: UP 0.7 percent at 25,858.03

Shanghai - Composite: UP 0.2 percent at 3,180.82

Oil - West Texas Intermediate: UP 12 cents at $44.86 per barrel

Oil - Brent North Sea: UP 12 cents at $47.43

New York - Dow: UP 0.7 percent at 21,454.61 (close)

London - FTSE 100: DOWN 0.6 percent at 7,387.80 (close)