Investing.com - The euro slid lower on Wednesday after rallying to a three-year high above the 1.23 level earlier amid growing expectations that the European Central Bank will start to unwind its massive monetary stimulus program this year.
EUR/USD was down 0.46% to 1.2207 by 08:30 AM ET (13:30 GMT) after rising as high as 1.2323 overnight, which was the strongest level since December 2014.
The single currency has strengthened broadly since last week's minutes of the ECB’s December meeting showed that officials were considering a gradual shift in policy guidance from early this year.
Any changes to the bank's guidance would likely been seen by investors as an indication that policymakers are preparing to winding down their bond buying stimulus program.
The euro declined after policymaker Ewald Nowotny that the euro's recent strength against the U.S. dollar is "not helpful," reflecting unease among officials over the currency’s strong gains.
The weaker euro lent support to the dollar, sending the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, up 0.24% to 90.44 after plumbing a three year low of 89.98 overnight.
The dollar has been pressured lower by the view that the global economic recovery will outpace U.S. growth and prompt other major central banks, including the ECB to begin unwinding loose monetary policy at a faster pace.
The dollar moved higher against the yen, with USD/JPY rising 0.22% to 110.69, pulling away from the four-month low of 110.18 reached overnight.
Sterling was little changed against the firmer dollar, with GBP/USD last at 1.3793 after rising as high as 1.3835 overnight, the highest level since Britain’s vote to exit the European Union in June 2016.
The Canadian dollar was steady against the greenback, with USD/CAD at 1.2429 ahead of the Bank of Canada’s monetary policy decision later in the day.
The BoC was widely expected to raise rates to 1.25% from 1.0% in what analysts expected to be the first of three rate hikes this year.