The euro looked poised to rise to three year highs on Tuesday after the European Central Bank indicated that the region was on the upswing by maintaining its current monetary policy last week. The common currency traded at $1.3865 at 6:00 GMT after ECB President Mario Draghi painted the bloc's recovery in a positive light following the ECB meeting,
Reuters reported that economists are expecting the common currency to rise as high as $1.45 in the coming months as the dollar faces problematic economic data. Following the ECB meeting last Thursday, many began to revise their predictions for the common currency as the bank indicated that the region was on the path to recovery and was not in need of a policy change.
However, the euro's strength is worrisome to some who believe it is adding to the risk of deflation as the price of imported goods falls. The ECB could intervene with monetary policy once the currency reaches $1.45, but may allow the currency to fluctuate until then.
Moving forward, investors will be watching US data for clues about where the currency is headed. The European Central Bank's decision not to act has left many to wonder whether or not the bank is planning to make a move in the future, which has created speculation about the April policy meeting.
Meanwhile, eurozone banks are working to tighten up their balance sheets ahead of the ECB's upcoming review. The region's banks are in the process of repaying large portions of their emergency loans this year, which will help boost investor confidence and help the region's financial system recover ahead of the quickly approaching overhaul.