On Wednesday, the dollar stabilized in a quiet market, with traders look to be waiting for a number of central bank meetings, most importantly the European Central Bank on Thursday.
The euro has gained almost 14 percent against the dollar since the start of 2017. Last week hit its highest levels since early 2015 as investors wage on a winding-back of the ECB’s stimulus program and retreated their predictions for further rate hikes from the U.S. Federal Reserve.
Among this hike in the euro – which is likely to drive down inflation – investors will be watching for indications that ECB President Mario Draghi has become concerned about the exchange rate, and that the currency’s strength could delay any policy tightening plans. The euro was flat at $1.1924, over a cent away from last week’s high of $1.2070.
“Right now everyone is basically waiting…for the ECB meeting tomorrow,” stated Commerzbank currency strategist Esther Reichelt.
“A lot will depend on how Draghi addresses the euro. I‘m quite confident that he’ll address it in some way but the question is whether he’ll address it strongly enough for the market to react.”
Despite the fact that the dollar had rebounded to trade flat against the yen by 1144 GMT, Reichelt added this did not mean markets had recovered their appetite for risk, directing to riskier currencies such as the Australian and New Zealand dollars were still firmly down on the day.
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Solving the North Korean nuclear crisis is impossible with sanctions and pressure alone, Russian President Vladimir Putin chimed in on Wednesday after meeting his South Korean counterpart, adding that the impact of cutting oil would be concerning.
A top North Korean diplomat on Tuesday warned his country was ready to send “more gift packages” to the United States as world powers struggled for a response to the country’s sixth and largest nuclear bomb test on Sunday.
“Markets have become increasingly sensitive to geopolitical influence,” stated FXTM analyst Lukman Otunuga, despite others said reaction to the latest test had been relatively muted, given the severity of the threat.
The greenback was flat against a basket of other major currencies .DXY, pressured on Tuesday by Fed policymaker Lael Brainard reporting inflation was “well short” of mark and that the Fed should be careful about hiking U.S. interest rates.