LONDON—The euro slumped on Friday to near 16-month lows after Austria became the first country in western Europe to reimpose a full lockdown and Germany did not rule out doing the same.
The single currency has been on the back foot all week, pressured by growing expectations that interest rates will be tightened faster elsewhere, particularly in the United States.
The dollar was on track for a fourth straight week of gains against major rivals, capitalising on the euro’s woes.
European Central Bank President Christine Lagarde doubled down on her cautious position on Friday, saying the ECB should not tighten policy as it could undermine recovery.
Austria also said it will require all its citizens to be COVID-19 vaccinated by February, while Germany’s health minister cautioned lockdown restrictions could return there.
“One thing is certain, if the whole of Europe had to go under lockdown once more, and depending on how long that would last, we would need to rethink our growth scenarios,” said Stephane Ekolo, global equity strategist at brokerage Tradition.
The euro is down more than 1 percent this week, falling by two- thirds of a percent on the day and dipping below $1.13, close to a low of $1.12630 hit on Wednesday.
The euro weakened across the board, also hitting more than six year lows against the Swiss franc, last down 0.5 percent.
The overall dollar index, which tracks the dollar against a basket of six major currencies, is on course for around a 1 percent weekly gain.
The dollar was up 0.4 percent on the day at 95.958, close to the 16-month high of 96.266 hit on Wednesday.
Expectations are growing that the dollar can strengthen further into next year. This week, U.S. retail sales beat expectations after last week’s inflation surprise.
“We think a combination of Fed tapering and slowing global growth should favour the U.S. dollar in 2022,” analysts at UBS said in an outlook report.
The Japanese yen strengthened following the announcement of Austria’s lockdown as traders sought safe havens, last up 0.3 percent versus the dollar at 113.93 yen.
The currency had earlier weakened slightly after a fresh 55.7 trillion yen ($490 billion) stimulus package was unveiled by Japan’s government.
Sterling shed some of its recent gains, and was down 0.5 percent at around $1.34330.
In cryptocurrencies, bitcoin is below $60,000 and set for its worst week in six months—last trading around $57,000.
($1 = 114.4500 yen)
