The dollar rallied versus European rival Friday after European Central Bank President Mario Draghi said policy makers are ready with unprecedented measures if inflation does not pick up.
It is feared that the euro zone will enter a dangerous deflationary spiral unless the ECB embarks on full-scale quantitative easing via asset purchases.
“If … our policy is not effective enough to achieve this, or further risks to the inflation outlook materialize, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases,” he said to bankers in Frankfurt.
Elsewhere, China’s central bank on Friday unexpectedly cut its key interest rates for the first time in more than two years in a bid to boost sagging growth momentum.
The People’s Bank of China reduced the one-year lending rate by 40 basis points to 5.6 percent. The one-year deposit rate was cut by 25 basis points to 2.75 percent.
The dollar jumped to near $1.24 versus the euro, not far from a 2-year peak of $1.2360 set earlier in November.
The buck also rose versus the sterling, improving to $1.56 from near $1.57.
Poltical risk was generated when the UK’s anti-EU party UKIP took a second parliamentary seat from Prime Minister David Cameron’s Conservatives.
Meanwhile, the dollar failed to build on this week’s 7-year peak of Y119 versus the yen. The pair was stuck below Y118 today.