The dollar sank to a three-year euro low Thursday after a top member of Donald Trump’s cabinet talked down the currency, while European Central Bank chief Mario Draghi warned that exchange rate volatility was as “source of uncertainty.”
The dollar fell to $1.25 for the first time in more than three years, after US Treasury Secretary Steven Mnuchin claimed a weaker dollar was “good” for the world’s top economy, as it boosted US trade opportunities.
But ECB chief Draghi voiced concern over the “volatility” in the currency markets, saying it “represents a source of uncertainty which requires monitoring”.
He spoke after the ECB left its massive financial stimulus for the eurozone economy in place, opting not to rock the boat after Mnuchin’s comments.
The pound meanwhile climbed further as British finance minister Philip Hammond said he was “very happy” with sterling’s recent strength, as it continues to recover from a Brexit-fuelled slump.
“The apparent lack of concern over the euro’s recent ascent by ECB chief Draghi provided the green light for a break of $1.25,” said NFS Macro analyst Nick Stamenkovic.
“Indeed, Draghi expressed disquiet over the recent volatility of the single currency and its impact on uncertainty but there was no mention of its level, providing further ammunition for euro bulls.”
Accendo Markets analyst Mike van Dulken said that the strength of sterling and the euro was acting as “a hindrance” for both the FTSE 100 and DAX.
“All the while, Wall St flirts with record highs, oil and metals embrace the dollar’s fall and we get a constant stream of politicians and financiers filling the airwaves from Davos,” the expert said.
Bright German data
“The euro’s strong performance at the start of 2018 has been aided by upbeat” economic data, said Stamenkovic at NFS Macro.
“But the real driver has been the parlous performance of the US dollar despite rising US rates and solid US growth. US Treasury Secretary Mnuchin’s latest comments clearly signalled a shift in the US forex policy, reinforcing negative dollar sentiment,” he told AFP.
In equities, European markets were all lower, under the weight of the rising euro, despite positive data out of the region’s economic powerhouse, Germany.
German companies and consumers are starting the new year brimming with confidence, two key surveys showed, signalling that Europe’s purring top economy is unfazed by Berlin’s slow path to a new government.
German business morale in January recovered from last month’s dip to climb back to the same record-high level seen in November, the Ifo economic institute said, surpassing market expectations.
At the same time, a forward-looking survey by market research GfK forecast that consumer confidence has risen to its highest level since 2001, buoyed by record-low unemployment and expectations of wage hikes.
In commodities, oil prices vaulted to new three-year peaks on Thursday, one day after news of a tenth weekly decline in US crude inventories.
The news, contained in the weekly US government energy inventories report, signalled strengthening demand for crude in top consumer the United States.
– Key figures around 1455 GMT –
Euro/dollar: UP at $1.2479 from $1.2423
Pound/dollar: UP at $1.4297 from $1.4265
Dollar/yen: DOWN at 108.96 yen from 109.04 yen
New York – DOW: UP 0.2 percent at 26,292.50 points
London – FTSE 100: DOWN 0.4 percent at 7,615.50
Frankfurt – DAX 30: DOWN 1.0 percent at 13,272.23
Paris – CAC 40: DOWN 0.3 percent at 5,479.99
EURO STOXX 50: DOWN 0.6 percent at 3,622.08
Tokyo – Nikkei 225: DOWN 1.1 percent at 23,669.49 (close)
Hong Kong – Hang Seng: DOWN 0.9 percent at 32,654.45 (close)
Shanghai – Composite: DOWN 0.3 percent at 3,548.31 (close)
Oil – Brent North Sea: UP 27 cents at $70.80 per barrel
Oil – West Texas Intermediate: UP 58 cents at $66.19