The U.S. dollar rallied Thursday, posting gains versus major rivals, including the euro, which slumped after failing to hold initial gains scored following the European Central Bank’s policy meeting.
The ECB left interest rates unchanged and renewed its pledge to continue asset purchases through the end of September. ECB President Mario Draghi played down soft first-quarter data in the eurozone, but also indicated that policy makers want to get a better grip on the causes of the slowdown before proceeding toward unwinding the bank’s ultraloose monetary policy.
What are currencies doing?
The ICE U.S. Dollar Index
DXY, +0.01%
which gauges the buck against a basket of six currencies, was up 0.5% at 91.618, its highest level since mid-January. The index has been chasing new high sover the past week as rising Treasury yields lent support to the dollar.
Read: Dollar rebound not here to stay: analyst
The WSJ Dollar Index
BUXX, -0.03%
which measures the greenback against 16 currencies, was up 0.2% at 85.47.
The euro
EURUSD, +0.0083%
last bought $1.2101—a fresh three-month low—down from $1.2161 late Wednesday in New York. Earlier, the pair hit a session-high of $1.2210.
The British pound
GBPUSD, +0.0359%
traded at $1.3916, up from $1.3930 in the prior session and an improvement from a Thursday intraday low of $1.3895. That was the first move below $1.39 in six weeks, FactSet data showed.
The greenback against the Japanese yen
USDJPY, -0.03%
was at ¥109.36, down from ¥109.43. The Bank of Japan will issue its latest policy decision on Friday.
Read: BOJ’s Kuroda sees potential end to QE, says no currency manipulation in Japan
What’s driving the market?
The ECB was the major focus for Thursday’s trading, seeing the euro to march to a session-high before retracing all of its gains and falling into negative territory.
Draghi said he remained confident in inflation convergence with the central bank’s target of near but below 2%, even as inflation figures in the eurozone have been subdued. Economic data in the currency bloc has disappointed of late, showing a slowdown of economic growth, but Draghi reiterated that it growth should remain solid and broad-based, helped by global growth.
Read: Draghi just made coming eurozone data a lot more important
On the matter of the relatively strong euro, which remains up 1.4% versus in the year-to-date according to FactSet, Draghi said the exchange rate wasn’t discussed by the committee.
Read the recap: Draghi cites ‘caution tempered by unchanged confidence’ after soft first quarter
The ECB in March surprised markets by signaling it’s on track to end its stimulus program before the end of 2018. But since then, economic data have pointed to a slowdown in the eurozone economy. That’s led investors to dial back expectations regarding the wind-down of the bond buying program and the eventual lifting of interest rates.
Meanwhile in the U.S., the dollar extended the gains it enjoyed in recent sessions, even as the 10-year Treasury yield
TMUBMUSD10Y, -0.21%
slipped back below the psychologically important 3% level. The 10-year bond last yielded 2.991%.
See: What recent CFTC data mean for dollar bulls
Read: What it means for the market that the U.S. 10-year government bond yield hit 3%
Rising bond yields have provided a supportive backdrop to the dollar over the past week. Those moves have come on the back of rising inflation expectations and reinforced speculation that the Federal Reserve will ramp up its pace in raising interest rates this year.
What are strategists saying?
“The fact that the [policy] statement was a ‘copy and paste’ of the March 8 statement should have served as a warning that there was unlikely to be much, if anything, to ‘take home’ from today’s press conference,” said Marc Ostwald, global strategist at ADM Investor Services International.
“In forward looking terms, the June meeting…would appear to be key in terms of offering markets something more concrete in terms of the ECB’s ‘path to normalization’. However they are rather unsure about how to interpret the soft Q1 data, and are clearly rather disappointed that inflation remains very subdued. The risk as such is that they push back on making any decisions on what they will do with the QE (APP) program until the end July meeting,” Ostwald added.
The problem for the ECB is “how to project confidence without sparking a market reaction that could send interest rates higher prematurely and thereby derail the fragile recovery,” said Marshall Gittler, chief strategist at ACLS Global, ahead of the central bank’s meeting.
Check out: Why the premium for German bonds over Treasurys is the widest in 30 years
Economic data
In U.S. data, jobless claims for the week ended April 21 fell to 209,000, undercutting the consensu estimate of 230,000.
Durable goods order for March advanced 2.6%, versus 2.5% expected, while core capital orders for the same month bumped 0.1% higher, compared with 0.9% prior.
The U.S. trade deficit narrowed to $68 billion in March, less than the $73.4 billion deficit expected.
Source : MTV
