CURRENCIES: Euro Sits At 2-year High As Hawkish View On ECB Dominates
July 21 2017 - 10:15AM
Dow Jones News
By Barbara Kollmeyer and Anora Mahmudova, MarketWatch
U.S. dollar Index on course for weekly slump
The euro strengthened further on Friday, hovering at a two-year
high against the dollar even as European Central Bank President
Mario Draghi struck a dovish tone about monetary policy during the
previous session.
The euro tapped a high of $1.1679 on Friday before pulling back
to $1.1640. That compares with $1.1632 late Thursday in New York,
the highest settlement since Jan. 15, 2015, according to WSJ Market
Data Group.
The currency moved above $1.16 for the first time since May 2016
on Thursday, after traders zeroed in on a press conference with ECB
President Mario Draghi. That followed the ECB's statement that it
left interest rates unchanged and that it will continue buying
EUR60 billion a month in bonds and other assets.
Draghi said the central bank would continue its bond-buying
program through December as planned, and that policy makers will
discuss the quantitative easing program this "autumn." He didn't
specify if that meant at its September meeting.
Traders ultimately sent the euro higher on the view that no
matter what Draghi said, the ECB will begin tapering those
purchases in 2018, and eventually will wind them down
altogether.
Read:Nobody told the euro that Mario Draghi was dovish
(http://www.marketwatch.com/story/nobody-told-the-euro-that-mario-draghi-was-dovish-2017-07-20)
The latest burst of strength for the euro may not get Draghi too
panicked, said Jennifer McKeown, chief European economist at
Capitol Economics.
"At just above $1.16 at the time of writing, the euro remains
well below its long-run average against the U.S. dollar of $1.21
and even further below its average in trade-weighted terms," she
said in a note Friday.
"And since it seems keen to taper its QE program (not least
because it is running out of assets to buy), we suspect that it
would take a further rise to $1.20 or more before year-end to
prompt the Bank to abandon its plans," said McKeown.
The key factor preventing a further euro rise will be U.S.
policy tightening, she said, adding that they expect the Federal
Reserve to hike interest rates in December and then four times in
2018.
The Fed will move into focus next week with a two-day meeting
starting July 25, though there are scant expectations for an
interest-rate change.
The ICE U.S. Dollar Index , which compares the greenback against
a half-dozen other currencies, was down 0.12% to 94.19, and was
heading for a weekly fall of 1%, according to FactSet.
Elsewhere, the British pound remained below the $1.30 level, but
was slightly firmer at $1.2980 from $1.2973 in late trading on
Thursday.
Against the yen , the dollar traded at Yen111.32, down from
Yen111.91 seen late Thursday.
In other currencies, Canadian dollar strengthened against the
dollar after Canadian retail sales and inflation data came in
stronger than expected. On Friday, the dollar bought C$1.2565, down
from C$1.2591 late Thursday. Over the week, the loonie gained 0.6%
against its southern counterpart and is up 6.5% year to date.
Some analysts suggested that the rally in the Canadian dollar
could be threatened by the housing market.
"With today's data adding to the momentum behind it, a Canadian
dollar move upward through another set of key technical resistance
levels looks increasingly likely -- but we remain convinced that
the loonie's Icarus-like rise is getting too close to the sun.
Should housing market weakness slow spending in the coming months,
the loonie's wings could melt," said Karl Schamotta, director of
global product & market strategy at Cambridge Global
Payments.
(END) Dow Jones Newswires
July 21, 2017 10:00 ET (14:00 GMT)
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