Euro Down on Day After ECB's Draghi Signals Policy Patienceby and
Risks to outlook are more balanced, inflation remains subdued
Aussie falls to lowest since January as commodities decline
The euro fell versus the dollar and most of its G-10 peers as European Central Bank President Mario Draghi signaled no urgency to tighten monetary policies despite an improved economic picture.
Draghi said that even amid the progress in growth, “underlying inflation pressures continue to remain subdued and have yet to show a convincing upward trend,” bringing focus to the ECB’s single mandate of price stability. The euro, which surged at the start of the week after the French election Sunday, dropped versus all but two of its major peers.
- The ECB reiterated that rates will remain at current or lower levels for an extended period and that its asset purchase program will continue to the end of 2017 or beyond, if necessary. The ECB can increase the size or duration of its asset purchase program, if needed, Draghi said.
- The shared currency saw choppy trading during the ECB press conference, rising to 1.0933 from its interim low as Draghi’s more upbeat tone appeared to align with trader expectations that had built over the course of the week. The euro retreated after Draghi said there was no discussion on changing forward guidance, seen as a threshold for the central bank to start considering withdrawing quantitative easing. Euro area bond yields fell sharply after Draghi spoke.
- The dollar pared slight gains seen earlier in the session, leaving the Bloomberg dollar spot index little changed. The Mexican peso and the Canadian dollar both retraced some of Wednesday’s drop after President Trump backtracked from a threat to withdraw from Nafta, though the CAD later fell as crude prices tumbled.
- Focus now shifting to month-end flows and next week’s FOMC decision; Credit Agricole strategists Jennifer Hau and Manuel Oliveri expect month-end rebalancing to lead to “mild” USD selling vs most G-10 currencies save for JPY and EUR, where neutral USD selling and mild buying is anticipated
- EUR/USD trading at ~1.0881 vs 1.0852 low seen mid-morning; EUR drop was cushioned by bids under 1.0860, with further demand seen in layers down to 1.0750, according to traders in Europe and London familiar with the transactions who asked not to be identified because they are not authorized to speak publicly. EUR may find interim support at 1.0836 from the 200-DMA. Stop-loss sell orders are in place below 1.0820, the level that marked the start of trading Monday as the euro rose sharply following the French presidential vote.
- USD/JPY trading at ~111.22 after rising to a high at 111.60 before dropping quickly with UST yields; offers are in place at 111.75, just ahead of technical resistance from Wednesday’s 111.78 high; additional supply related to a large 111.80 option expiry next week may also emerge.
- AUD/USD trading at ~0.7467; it dropped to 0.7440, lowest since January, after stop-loss sell orders were tripped under 0.7450; AUD extending losses that began earlier in the week after inflation data missed estimates.