Investing.com - The euro rose to the day’s highs on Tuesday after European Central Bank President Mario Draghi said there are clear signs of a “strengthening and broadening” recovery underway in the euro zone area.
EUR/USD climbed 0.53% to trade at 1.1239 by 08.36 GMT (03.36 ET), the highest level since June 14.
Draghi said the ECB sees growth that is above trend and well distributed across the euro area, but reiterated that “a considerable degree” of stimulus is still needed in the euro zone, and that the ECB must be “prudent” in how it unwinds it.
“As the economy picks up we will need to be gradual when adjusting our policy parameters, so as to ensure that our stimulus accompanies the recovery amid the lingering uncertainties,” he said.
The comments came during the keynote speech at the ECB’s central banking forum in Portugal.
Draghi said the ECB’s policies have been effective in rebuilding inflation, but noted that the reflationary process was being slowed by a combination of external price shocks, more slack in the labor market and changing relationship between slack and inflation.
“The past period of low inflation is also perpetuating these dynamics,” he added.
He said the factors weighing on the path of inflation were mainly temporary, adding that deflationary forces are being replaced by inflationary ones.
The euro was also higher against the yen and the pound following Draghi’s remarks, with EUR/GBP advancing 0.4% to 0.8824 and EUR/JPY climbing 0.26% to 125.39.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.4% at 96.72, pressured lower by the stronger euro.
Meanwhile, investors were awaiting comments later in the day by U.S. Federal Reserve Chair Janet Yellen.
Traders were waiting to see if Yellen would maintain a positive outlook on the U.S. economy despite a recent batch of weak economic reports, which would support the Fed’s projection for one more rate hike this year and three rate hikes next year.
Recent weakness in economic data has raised questions over the Fed’s plans to tighten monetary policy, with investors now expecting that the pace of its tightening could be much slower than policymakers want.