The dollar was strong across the board; against the euro, the pound, the yen and the Australian dollar, after news that the ECB is likely to join the Bank of Japan and increase its monetary stimulus in the not-too-distant future. Mario Draghi’s press conference the previous day weakened the euro to fresh 2-year lows of 1.2365, driving it below Monday’s 1.2439 low. The euro was trading at 1.2387. The dollar index traded at 5 ½ year high and risk assets in the US such as large-cap stocks registered fresh all-time highs on the promise of ample liquidity around the world despite the end of QE from the Fed.
During the conference and in the introductory statement, Draghi sounded like the ECB was seriously considering further “unconventional measures” – a byword for asset purchases. Furthermore, Draghi stressed that he had the unanimous backing of the Governing Board, both for the possibility of additional measures and for increasing the ECB balance sheet from its current 2 trillion euros to 3 trillion. It remains to be seen whether Draghi will deliver additional stimulus during the next meeting in December and what specific form – and size of course – that stimulus will take. The apparent quelling of internal dissent within the ECB through the usage of the introductory statement signed by every Governor, eased worries that dissenters would block additional stimulus measures. This more than anything opened the way to additional euro selling, as euro / dollar starts to target the 1.20 level as a possibility.
The market’s focus has now turned to the US employment report and perhaps one reason for the dollar’s strength is the expectation that jobs growth was again strong during October. Economists expect the US economy to have added 230 thousand net new jobs during the month and the unemployment rate to have remained steady at 5.9%.
The Australian dollar fell to fresh 4-year lows of 0.8547 against the US dollar on commodity price weakness and as the Reserve Bank of Australia continued to complain in its quarterly monetary policy report that the currency was still relatively high and not reflecting the big drops in the prices of key Australian commodity exports.
Apart from the US employment report, UK trade balance and the Canadian employment numbers will also be released today.