Dollar Halts Drop as Markets Digest Lack of ECB Intervention

Updated on
  • Greenback recovers about half of its plunge against yen
  • Ten-year Treasury yield rebounds from new yearly low 2.03%

The dollar stemmed the bleeding after earlier falling to the lowest in two years as Treasury yields rose from session lows and as key technical levels held amid light profit-taking.

The Bloomberg dollar index was down about 0.7 percent after morning losses seen when the euro surged in the aftermath of European Central Bank President Mario Draghi’s press conference. Draghi repeatedly mentioned concern over the euro but didn’t raise any potential actions to address the rise of the common currency, which gained past 1.2000. Meanwhile, the Canadian dollar advanced to its strongest since May 2015, extending gains seen after Wednesday’s Bank of Canada rate hike, with market focus shifting to the nation’s jobs report due Friday.

  • The dollar decline moderated as Treasury yields picked up from year-to-date lows. The euro failed to set a new year-to-date high and USD/JPY bounced off 108.00 area. The greenback was still down against all of its G-10 peers
  • The ECB, which left decisions on adjusting QE to later this year, is said to be studying options for the asset-purchase program that could be implemented without tweaking its rules. While the Governing Council made quite clear that the euro’s appreciation was becoming a concern for most members, the euro still rose as high as 1.2059 before paring gains to trade ~0.9% higher near 1.2020
    • The 1.2000 level is “pivotal” for EUR/USD; a close above the level would suggest scope to 1.2150, while a close below would show “the move to buy is lacking conviction,” said Craig Erlam, senior market analyst at OANDA
    • Draghi’s comments may have slowed the appreciation of the euro, but the common currency is still set to continue gaining, said Patrick O’Donnell, senior investment manager at Aberdeen Standard Investments
  • USD/JPY rebounded from a session low of 108.05 to trade ~0.7% lower near 108.50. JPY may also have seen some haven flows amid expectations that North Korea could launch an ICBM this weekend as it marks the Korea Day holiday
  • USD/CAD slid ~0.8% to trade near 1.2125 vs a session low of 1.2119. Analysts expect that Canada added 15k jobs in August, vs 10.9k in July
  • Cleveland Fed President Loretta Mester said that she’s “comfortable” raising rates again this year, breaking from the chorus of doves earlier in the week; Fed’s Dudley is scheduled to speak at 7pm in NYC; the Senate voted to extend the debt limit
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