The euro rose to the highest in more than two years versus the dollar as expectations for further European Central Bank stimulus waned, boosting demand for the 18-nation currency.
The greenback weakened versus most of its 16 major peers before the release of U.S. payrolls data. The euro extended a fifth weekly advance versus the dollar after ECB President Mario Draghi yesterday signaled that deflation risks in the euro region are easing and policy makers kept interest rates at a record-low 0.25 percent. Australia’s dollar rose to the highest versus the greenback in almost three months.
“It’s clear from what the ECB said yesterday that rates are on hold and they’re not going to take any more expansionary measures,” said Peter Kinsella, a foreign-exchange strategist at Commerzbank AG in London. “That, to me, says that the only thing that’s going to hold back the euro from here would be valuation concerns. I don’t see anything in the way of gains toward $1.40.”
The euro rose 0.3 percent to $1.3903 at 7:06 a.m. New York time after reaching $1.3915, the highest since October 2011, and set for a weekly gain of 0.7 percent. The euro rose 0.2 percent to 143.12 yen, set for a 1.9 percent gain this week. The yen strengthened 0.1 percent to 102.94 per dollar.
The ECB left its benchmark interest rate at 0.25 percent at a meeting in Frankfurt yesterday as forecast by 40 out of 54 economists surveyed by Bloomberg News. The other 14 were predicting a rate cut.
Euro-area inflation, which was at 0.8 percent in February, will accelerate to 1.7 percent in the fourth quarter of 2016, according to ECB forecasts. Consumer prices are projected to rise 1 percent this year. ECB officials see inflation at 1.3 percent in 2015 and an average rate of 1.5 percent in 2016.
“Expectations for further easing have been pushed back, creating pressure on the euro to rise toward $1.40,” said Minori Uchida, the head of global-market research at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo. “But as the euro rises, it’ll increase disinflationary pressure, eventually necessitating more stimulus.”
The U.S. added 149,000 jobs in February, after a 113,000 increase a month earlier, according to the median estimate in a Bloomberg News survey of economists taken before the Labor Department report today. Payroll gains averaged almost 200,000 a month in 2013.
Initial jobless claims fell by 26,000 to 323,000 in the week ended March 1, the least since the end of November and fewer than the lowest forecast in a Bloomberg poll, data showed yesterday.
“A weaker number is at least half-expected, weather-related -- and not all recent labor data has been soft,” National Australia Bank Ltd. analysts led by Sydney-based Peter Jolly wrote in a research note, referring to the payrolls report. “Stronger than consensus would be a real surprise, and solidify expectations tapering will continue,” supporting the dollar, he wrote.
Fed policy makers are trying to determine whether recent economic weakness stems from harsh weather or fundamental obstacles to growth. At a March 18-19 meeting of the Federal Open Market Committee they’ll weigh whether to proceed with another $10 billion cut to their bond purchases, which would reduce the monthly pace to $55 billion.
New York Fed President William Dudley said in New York yesterday that while harsh weather will hurt growth during the first quarter, it doesn’t prompt “a fundamental change in the outlook,” and “does not rise to the level where you change the taper path.”
Atlanta Fed President Dennis Lockhart said in the text of a speech in Washington yesterday there is “a high bar to reversing course,” unless the U.S. economy “takes a major turn for the worse or a spell of intense disinflation develops.”
Philadelphia Fed President Charles Plosser suggested tapering needs to be accelerated. “Reducing the pace of asset purchases in measured steps is moving in the right direction, but the pace may leave us well behind the curve if the economy continues to play out according to the FOMC forecasts,” he said yesterday in London.
Australia’s dollar rose 0.4 percent to 91.28 U.S. cents after rising to 91.30, the strongest since Dec. 11. It has climbed 2.3 percent this week as data showed economic growth and retail sales rose more than analysts predicted and the trade surplus widened to the most in 2 1/2 years.
An Australian dollar at 90 U.S. cents is higher than the RBA’s assessment, the Reserve Bank’s Stevens told a parliamentary panel in Sydney today. He said he doesn’t see the need to loosen already “very accommodative” monetary policy “at this point in time.”