Dollar holds losses to euro after ECB comments, economic data
The dollar held losses to the euro and British pound late on Thursday as currency traders digested moves in interest rate markets, comments by the European Central Bank President Christine Lagarde and a weaker-than-expected U.S. economic report.
The euro rose nearly 0.7% against the dollar and was headed for its biggest daily gain since May. It traded at $1.1681 in the late afternoon in New York.
Sterling gained nearly 0.4% to $1.3788.
The dollar index of major currencies lost nearly 0.6% to 93.3580.
Some of the currency volatility is likely a spill over from uneasy interest rate markets. Recently flattening yield curves have suggested to some that central banks will have to sacrifice support for the pandemic recovery by allowing interest rates to rise to try to hold back inflation. Euro zone yields rose sharply on Thursday.
Before Lagarde spoke in a press conference, the euro moved little on the ECB policy statement. The ECB had stood, as expected, by its plan to keep buying bonds and hold down interest rates.
Some saw Lagarde’s comments as not being as forceful in affirming the ECB’s dovish position as markets expected.
The dollar got no help from a U.S. government report that gross domestic product grew at only a 2% annualized rate in the quarter ended in September. Economists polled by Reuters had forecast a 2.7% rate.
More recent U.S. economic data has been stronger, so the report had not been expected to matter much to the dollar.
ECB’s Lagarde seeks to cool rate hike predictions for next year
European Central Bank President Christine Lagarde on Thursday tried to play down the chances of a rate hike for 2022, hinting that market players might be getting ahead of themselves with their predictions.
The euro zone’s central bank decided to keep interest rates and its monetary policy stance unchanged despite ongoing inflationary pressures.
Some market participants believe the ECB is underestimating current inflationary pressures and will therefore likely have to announce a rate hike before the start of 2023. Indeed, money markets have priced in the probability of a 20-basis point hike for December 2022.
But Lagarde remained resolute at her news conference Thursday.
At the time, Lagarde made it clear this was a recalibration, but not tapering. This is because the ECB is of the view that higher inflation is temporary and will fade throughout 2022.
ECB watchers are expecting Lagarde to announce a formal tapering in December. The central bank’s Covid-19 stimulus program — known as the Pandemic Emergency Purchase Program — is due to end in early March of next year. So, many analysts are expecting a readjustment in the bank’s stimulus ahead of that.
Some have pointed out that the ECB will likely keep buying government bonds but through other less-flexible programs.
Reference: Reuters, CNBC
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