Dollar tumbles to a 10-month low after ECB signals it may trim stimulus moves
The dollar slid to 10-month lows against the euro on Tuesday after the head of the European Central Bank opened the door to steps that might begin to reduce the central bank’s stimulus and after a vote on US health care legislation was delayed.
Speaking to a conference in Portugal, ECB President Mario Draghi said the ECB could adjust its policy tools of sub-zero interest rates and massive bond purchases as economic prospects improve in Europe. The euro rose about 1.5 per cent, its biggest daily percentage gain against the dollar in more than a year.
But any change in the bank’s stance should be gradual, as “considerable” monetary support is still needed and the rebound in inflation will also depend on favourable global financing conditions, he added.
“The move today is really being driven by the hawkish pivot from Draghi,” said Mazen Issa, senior FX strategist, at TD Securities in New York. He said the euro would likely trade in an elevated range of between US$1.10-US$1.15 in the near-term following Draghi’s comments.
The dollar extended losses after US Senate Majority Leader Mitch McConnell delayed a vote on health care legislation, hoping to get more support from Republican senators.
The legislation would advance a repeal of major elements of Obamacare and replace it with a new federal health care programme.
The euro surged against the greenback to US$1.1349, its highest since late August 2016. The dollar eased from a more than one-month high against the Japanese currency of 112.46 yen, touched earlier in the session, and was last just 0.3 per cent higher at 112.12 yen.
The dollar index, which measures the greenback against a basket of six major rivals, touched a 13-day low of 96.344 . The dollar touched a more than seven-month trough against the Swiss franc of 0.9593 franc.
The delay of the health care vote eroded expectations that President Donald Trump can succeed at realising his agenda of tax reform and infrastructure spending, analysts said.
“People are losing confidence in the ability of the administration to get anything done,” said Jason Leinwand, founder and chief executive of FirstLine FX in Randolph, New Jersey. “It will slowly grind on the dollar.”