Dollar Holds Losses Against Euro After ECB Comments, Economic Data

  • Euro gains nearly 0.7% to $ 1.1681
  • US dollar index drops to 93.3580
  • British pound gains 0.4% to $ 1.3788
  • BoJ gives another accommodating outlook on inflation
  • Reserve Bank of Australia fuels bets on rate hike

NEW YORK, Oct.28 (Reuters) – The dollar suffered losses against the euro and the pound on Thursday evening as traders digested movements in interest rate markets, the president’s comments from European Central Bank Christine Lagarde and weaker-than-expected US economic conditions report.

The euro appreciated nearly 0.7% against the dollar and was heading for its biggest daily gain since May. It was trading at $ 1.1681 late afternoon in New York.

The British pound gained nearly 0.4% to $ 1.3788.

The dollar index of major currencies lost nearly 0.6% to 93.3580.

Currency markets have become volatile around the activity of central banks. Bigger action began on Wednesday with hawkish comments from the Bank of Canada and was followed by action by the Reserve Bank of Australia and comments from the ECB on Thursday – all ahead of US Federal Reserve meetings and the Bank of England next week.

“The market is very heated and sensitive to concerns about inflation and this notion that central banks are lagging behind,” said Mazen Issa, senior currency strategist at TD Securities.

One factor contributing to the increasing volatility, Issa said, is the approach of the end of the month, when more investment managers rebalance their portfolios between currencies.

As central banks adjust each chart to the monetary policies adopted during the pandemic, traders attempt to predict the direction of interest rates and inflation-adjusted returns across currencies.

Part of the currency volatility is likely due to volatility in interest rate markets. The recent flattening of yield curves has suggested to some that central banks will have to sacrifice support for the pandemic recovery by allowing interest rates to rise in an attempt to contain inflation. Eurozone yields rose sharply on Thursday.

Before Lagarde spoke at a press conference, there was little movement in the euro on the ECB’s policy statement. The ECB had maintained, as expected, its intention to continue buying bonds and to keep interest rates low. Read more

Some felt that Lagarde’s comments were not as convincing in asserting the ECB’s accommodative stance as the markets expected.

“President Lagarde has not sufficiently suppressed market expectations for rate hikes next year,” Rabobank economists wrote in a note.

The dollar received no help from a US government report that said gross domestic product only grew at an annualized rate of 2% in the quarter ended in September. Economists polled by Reuters had expected a rate of 2.7%. Read more

The most recent US economic data has been stronger, so the report shouldn’t matter much to the dollar.

Although the pound sterling strengthened against the dollar, it fell 0.3% against the euro.

The pound was recently rocked by speculation whether the Bank of England would raise interest rates at its meeting next week.

Early Thursday, the Reserve Bank of Australia refused to buy a government bond at the heart of its stimulus package, and the Australian dollar fell in response to speculation the central bank would allow rates to rise further. sooner than expected. Read more

The Aussie initially fell 0.5% after the RBA’s statement but quickly wiped out those losses and was up 0.3% against the US dollar at 1924 GMT.

In cryptocurrencies, bitcoin rose 3% to $ 60,040.

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Price of currency offers at 3:24 p.m. (1924 GMT)

Reporting by David Henry in New York and Tommy Wilkes in London. Editing by Christina Fincher, Will Dunham, Barbara Lewis and Marguerita Choy

Our Standards: The Thomson Reuters Trust Principles.

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