Euro touches one-year high as markets react to Draghi

The euro touched a one-year high and government bond yields climbed as investors digested a series of hawkish messages from central banks. European stocks sank as the global selloff in technology companies spread.

The single currency hit the highest level since last year's Brexit vote and most bonds extended declines as Monday's upbeat remarks from ECB president Mario Draghi continued to feed into the European market. Fed chief Janet Yellen added to the momentum as she noted asset valuations look rich and signalled the US economy can withstand higher interest rates, and Treasury yields rose again after the biggest increase since January. Oil's winning streak ended as industry data showed American stockpiles rose.

Traders appear to be reappraising the outlook for global borrowing costs and monetary policy in the wake of the comments from the usually dovish Mr Draghi. While Ms Yellen qualified her assessment that asset valuations look high by some measures, the note of caution came just as markets were buffeted by a series of events, including an IMF cut to its US growth forecast, Google suffering the biggest ever EU antitrust fine, a fresh blow to the Republican agenda in Washington and a global cyberattack.

“Central banks taking the punch bowl of liquidity away does not bode well for the outlook for volatility in the short term, leading to position adjustments,” Morgan Stanley strategists including Hans Redeker wrote in a note. “Conditions for the emergence of a proper bear market are not yet in place, even so, yesterday’s high trading volume suggests that corrective activity may stay with us for several days.”