Dollar Up for a Second Day as Euro Dragged Lower by CrossesBy and
Catalonia developments eyed as Thursday ECB meeting awaited
Loonie declines toward 100-DMA before Bank of Canada meeting
The dollar rose for a second session and touched its highest since July 14 as traders geared up for a week of central bank meetings, starting with Canada on Wednesday.
The Bloomberg Dollar Spot Index advanced nearly 0.3 percent to new daily peak in the New York afternoon as the euro fell to session lows against the greenback, yen and pound. While the market waits for more news on the Federal Reserve leadership succession and the U.S. budget, this week will also see decisions from the Bank of Canada, Norges Bank, Riksbank and the European Central Bank.
- The dollar was up against most of its G-10 peers, with strongest gains against the euro and Scandinavian currencies, as U.S. Treasury yields pared declines. The House is expected to vote on a budget resolution Thursday and the Republican tax plan may be released a week after that, a lawmaker said. President Trump told reporters he is “very, very close” to announcing his choice for Fed chair
- USD/CAD is trading ~1.2642 vs session high of 1.2660 reached near midday. Approach of the BOC meeting and Oct. 31 Canada fiscal year-end may be crimping flows, a trader in Toronto said. The central bank is viewed as unlikely to raise rates this week. Chances are better for a move in December, with market-implied odds of an increase at that meeting near 40 percent
- USD/JPY is trading ~113.68, close to its session low at 113.61. Trading flows have been modest on the day as investors parse the Japanese election results and the potential affect on policies
- The yen fell slightly overnight and the Nikkei rose more than 1 percent after PM Abe’s LDP-led coalition scored a landslide victory, likely assuring the continuation of Abenomics, while the PM also tackles constitutional reform, analysts say. There may be little immediate impact on BOJ policy, and BOJ Governor Kuroda stands a strong chance of being reappointed when his term expires next year
- Market focus on Thursday’s ECB meeting will intensify in coming days. The ECB is expected to offer more insight into its plans for tapering the QE program that is currently set to continue until the end of 2017. Expectations center on a 9-month extension of the program at perhaps half the current monthly pace of EU60b. ECB officials have acknowledged that stimulus is still required to nurture inflation and that interest rates will remain “at or below” current levels for the foreseeable future
- Separately, Spain PM Rajoy said that the standoff with Catalonia is a threat to the economy and elections will be held within six months, while Catalan separatists are mobilizing a human shield to block Spanish authorities from taking control of the region
- EUR/USD rebounded to trade near 1.1744 after hitting a fresh low of 1.1725 as cross flows also sent EUR/GBP and EUR/JPY to new lows. Bids to buy EUR, which were layered below 1.1740 and extend to 1.1700, may have helped cushion the decline, even after some demand tied to 1.1730 option expiries rolled off
- EUR/USD remains in a tight trading range, with support at the early October 1.1670 low, bolstered by the 100-DMA at 1.1660