The U.S. dollar on Wednesday weakened against its main rivals—notably the euro—as European Central Bank officials amplified rhetoric suggesting that the central bank is read to a discuss a timetable for ending its massive bond-buying program.
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What are currencies doing?
The ICE U.S. Dollar Index
DXY, -0.25%
which measures the buck against six rivals, fell 0.3% to 93.665. The broader WSJ Dollar Index
BUXX, -0.20%
lost 0.2% to 86.94.
The euro
EURUSD, +0.4778%
climbed to $1.1770 from $1.1720 late Tuesday in New York, hitting its highest level since May 21.
The British pound
GBPUSD, +0.1344%
also traded around a two-week peak, rising to $1.3410 from $1.3395.
Against Japan’s yen
USDJPY, +0.36%
the dollar rose to ¥110.22 from ¥109.79.
The buck gave back Tuesday’s gains against the Canadian dollar
USDCAD, -0.1542%
and Mexico’s peso
USDMXN, -0.8094%
after hitting multimonth highs against both currencies. One dollar last bought C$1.2959, down from C$1.2967, and 20.3189 pesos, versus 20.4593 pesos late Tuesday.
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What’s driving markets?
The euro swung higher after two ECB officials on Wednesday indicated the bank’s meeting on June 14 will cover the timetable for winding down its €2.5 trillion ($2.94 trillion) program of bond buying, or quantitative easing.
The comments by ECB Chief Economist Peter Praet and ECB policy maker Jens Weidmann appear to back up a Bloomberg report published Tuesday that the central bank will discuss QE’s end when policy makers gather in Riga, Latvia. The euro climbed above $1.17 after Tuesday’s report.
“Next week, the Governing Council will have to assess whether progress so far has been sufficient to warrant a gradual unwinding of our net purchases. In making its assessment, it will consider the underlying strength of the euro area economy and the pass-through to wage and price formations,” said Praet in prepared remarks for a speech in Berlin.
Meanwhile, Weidmann said market expectations for the central bank to end quantitative easing this year are plausible, according to media reports.
The ECB has previously said it plans to run the program—which purchases debt from eurozone countries and corporate debt from European companies—until the end of September. But it has left itself the option of continuing the purchases if needed to help eurozone inflation reach the ECB’s target of just below 2%.
Elsewhere, the peso slightly recovered after hitting a multimonth low against the dollar in the prior session, as trade tensions surround Mexico and the U.S. The Mexican government late Tuesday published a list of U.S. goods—including bourbon, pork and cheese—that will face import tariffs. That’s a retaliatory move after the U.S. said it would place duties on Mexican steel and aluminum.
But investors will keep watching trade-related developments after Treasury Secretary Steven Mnuchin reportedly urged President Donald Trump to exempt Canada from metals tariffs at a meeting Tuesday. That adds to a report Wednesday that China had offered to buy some $70 billion of U.S. goods to get the Trump administration to cool its tariff threats.
Leaders of the Group of Seven nations will likely discuss trade as they hold talks in Canada on Friday and Saturday.
What are strategists saying?
“Positioning remains in favor of dollar shorts against currencies like the euro but also the Swiss franc, Japanese yen, Australian dollar
AUDUSD, +0.6696%
and Canadian dollar, where markets are short to a meaningful degree,” wrote Morgan Stanley analysts led by Hans Redeker. “A weakening dollar would be supportive of risk sentiment and arguably would bolster our equity strategists’ view looking for the S&P 500
SPX, +0.86%
to rally towards 2,800-2,825 in the short-term.”
Next week’s ECB meeting “will be an exciting one,” wrote Carsten Brzeski, chief economist covering Germany and Austria at ING.
“Even though some market participants will take today’s comments by Peter Praet as a prelude of an imminent decision next week, we still don’t think that the ECB will easily give away flexibility and room for maneuver on QE in a situation in which downside risks to the economic outlook have increased and political risks—be it from Italy or later this year from Brexit—could easily re-emerge,” said Brzeski in a note.
“Against this background, clear hints at [the] end of QE, while keeping full flexibility, at next week’s meeting still looks like the most likely outcome,” he said.
What else is in focus?
Data out Wednesday showed the U.S. trade deficit fell to a seven-month low as exports set a fresh record in April, before the Trump tariffs took effect.
Productivity, on the other hand, underperformed consensus estimates, coming in at 0.4% in the first quarter, versus 0.6% expected. Unit labor costs were in line with estimates at 2.9%.
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In other assets, U.S. stock benchmarks advanced. U.S. Treasury yields also rose, and the 10-year note
TMUBMUSD10Y, +1.54%
last yielded 2.976%.
Source : MTV
