The euro had a choppy session and ended lower against the dollar as markets were disappointed by ECB President Mario Draghi’s dovish language on inflation and lack of discussion on forward guidance or on exiting the current ECB stimulus program. Draghi’s press conference overshadowed a raft of US economic data released around the same time as he was speaking. Despite the softer data on durable goods orders, initial jobless claims and pending home sales, the dollar index was higher on the day.
The ECB did not make any changes to interest rates or QE at its policy meeting today, as was widely expected by the markets. But the Bank left the door open to extending the size or duration of QE if needed. While Draghi did sound more confident about the economy and said that downside risks have diminished, he talked down inflation which is still subdued and has been undershooting the ECB’s 2% target for a fifth straight year. Draghi mentioned that the ECB Governing Council has not seen sufficient evidence to change its assessment of the inflation outlook and has not seen a convincing upward trend.
Draghi’s dovish comments on inflation pushed the euro down to a session low of $1.0851. Earlier in the session, the euro jumped to as high of $1.0932 when the ECB chief acknowledged that the Eurozone has been experiencing strong economic growth. But the ECB continued to keep risks tilted to the downside on growth, citing external factors.
In other news, the US released a barrage of economic data today, which were mostly disappointing and could dampen optimism over the strength of the economy. Durable goods orders slowed in March, rising just 0.7% month-on-month versus 1.2% expected and lower than February’s upwardly revised 2.3% rate. Durable orders ex-transportation fell into negative territory to contract by -0.2%. Non-defense capital goods orders were also weaker, growing just 0.2% relative to 0.5% expected and 0.1% in the prior month. Meanwhile, initial jobless claims rose to 257k last week, higher than the 245k expected. Pending home sales fell in March by 0.8% month-on-month. However, a larger -1% drop had been expected. The year-on-year figure came in at +0.5% versus -1% expected.
The broadly weaker euro helped the dollar higher, pushing the dollar index up to regain the 99-point level, while the greenback rose to a session high of 111.59 yen before easing back down to 111.27.
Sterling was one of the best performing major currencies and rose to a new 2017 high of $1.2916, helped by euro’s weakness against the pound. EUR / GBP fell to 0.8420.
Adding to pound strength were comments by European Commissioner for Trade, Cecilia Malmstrom, who said the EU will reach a free trade deal with the UK after Brexit “for sure”.