The dollar strengthened against the euro on Thursday after U.S. equities jumped at the open, while European Central Bank President Mario Draghi’s remarks fed fears about the monetary union as he announced the bank would keep policy unchanged.
The ECB reaffirmed that its 2.6 trillion euro ($2.97 trillion) asset purchase scheme will end this year and interest rates could rise after next summer. The policy guidance has been consistent since June even though the economic outlook has darkened while political turmoil in Italy looms over the currency bloc.
The single currency EUR= rose immediately after the central bank’s rates announcement, then began to sell off “once Draghi started speaking again and highlighted the risks around Italy and Brexit,” said John Doyle, vice president of dealing and trading at Tempus, Inc.
Doyle said the euro’s decline was the primary reason for the jump on Thursday in the dollar index .DXY, which measures the greenback’s performance against a basket of six other currencies. He said it was amplified by the rise in U.S. stocks at the opening bell after a selloff on Wednesday which pushed the Nasdaq into correction territory and erased all the yearly gains on the S&P 500.SPX and the Dow DJI.
Against the dollar, the euro fell to a two-month low of $1.1368, last down 7 basis points over the day. The dollar index hit a two-month high of 96.617, last up 26 basis points from the open.
Sterling hit a six-week bottom of $1.283 GBP= after Draghi said the longer Brexit talks drag on, the more the private sector must prepare for the possibility that Britain could crash out of the European Union with no deal on future relations.
Elsewhere, the Japanese yen JPY= weakened although the Swiss franc CHF=, a rival safe haven, gained.
The yen weakened to as much as 111.81 against the dollar, but nevertheless remained up by 1.8 percent from its 2018 trough hit on Oct. 3.
The Swiss franc spiked against the dollar following the Draghi announcement to trade as high as $1.002 CHF= and strengthened by 16 basis points against the euro EURCHF=.
The Australian dollar, often viewed as a bellwether for global risk, rose 0.26 percent to $0.708 AUD=. However, in a sign that the worries about global growth, particularly in China, are beginning to bite, the offshore yuan CNH= hit a 22-month low, last at 6.954.
