Dollar dumped as ECB signals its to exit strategy
Australian dollar reaches two-decade high
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The U.S. dollar fell again on Thursday, pushing the euro to an eight-month high and the Japanese yen to its strongest level in at least 15 years, after European Central Bank President Jean-Claude Trichet said the central bank has not changed its view on being in exit mode from the easy monetary policy steps it took during the credit crisis.
The ECB stands in contrast to the Federal Reserve, which investors expect will resume quantitative easing as early as next month, which could devalue the dollar. See related story on Fed's possible strategy.
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• See all the latest markets video /conga/story/misc/markets.html 84614 The euro (U.S.:EURUSD) rose to an eight-month high of $1.4028.
After Trichet’s press conference ended, the single currency traded at $1.3961, up from $1.3934 Wednesday.
The dollar index (BOARD:DXY) , a measure of the U.S. unit against a basket of six major currencies traded at 77.245, compared to 77.397 in late New York trading on Wednesday.
The dollar continued to fall versus the Japanese yen, slipping further below the 82.85-yen level that prompted a round of intervention by Japanese authorities last month as they sought to stem the yen’s rise.
The dollar (U.S.:USDYEN) fell to ¥82.47, down 0.7%.
Trichet also said policy is appropriate and the economic recovery should proceed at a moderate pace.
About the recent rally in the euro, all Trichet said was his standard line that a strong U.S. dollar is in the interests of the U.S. He also said volatility in foreign-exchange markets is “adverse” for economic stability.
The European Central Bank left its key lending rate unchanged at 1%, as expected. Read about the BOE and ECB decisions.
U.S. data, yields
The dollar was also pressured as Treasury yields fell after a report showed jobless claims declined to 445,000 in the latest week, but are still at uninspiring levels. Read about jobless claims.
Lower yields on U.S. debt make dollar assets less attractive, analysts said. See more on U.S. Treasury bonds.
“The latest reading is essentially in line with the 450,000 to 465,000 range that has prevailed since late March, so we would need to see further declines before confirming that a meaningful downtrend is in place,” said economists at RBS Securities.
Traders continue to move away from the dollar as data appears to be sufficiently weak for the Federal Reserve to loosen monetary policy further by starting a new asset buying program, generally known as quantitative easing. The Fed’s next meeting is on Nov. 3, a day after midterm elections for Congressional and some local posts.
Quantitative easing is a strategy designed to fend off deflation. Central banks effectively create new money via reserves that are used to purchase assets such as government bonds.
“The Fed is looking to increase QE at the November meeting after the U.S. elections,” said Douglas Borthwick, managing director of Faros Trading in Stamford, Conn., in a reference to what’s known as quantitative easing.
British pound gains
The British pound (U.S.:GBPUSD) topped the $1.60 level to trade at an eight-month high after the Bank of England left its key rate unchanged at 0.5% and held its asset-purchase program at 200 billion pounds ($317 billion).
Both moves were also widely expected, but economists see rising probability the U.K. central bank will resume its quantitative-easing program in coming months.
The pound traded at $1.5933 in recent action, up 0.5%.
Aussie rallies
Another big winner, the Australian dollar (U.S.:AUDUSD) jumped to the highest level in more than 20 years after surprisingly strong jobs data. Read about Austrailian jobs data.
The Aussie rose as high as 99.17 U.S. cents, before edging back to buy 98.67 U.S. cents, up 1%.
The Aussie’s been a top performer as concerns about a global wave of quantitative easing have taken hold, weakening the world’s major currencies.
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