Dollar Up, but Near One-Month Low After ECB Policy Decision Strengthens Euro

The dollar was up on Friday morning in Asia but remained near its weakest level in a month. A stronger euro, as investors bet on earlier European interest rate hikes, capped gains for U.S. currency.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched up 0.07% to 93.388 by 12:16 AM ET (4:16 AM GMT).

The USD/JPY pair inched up 0.07% to 113.64. Japanese data released earlier in the day showed that the Tokyo core consumer price index (CPI) grew 0.1% year-on-year, while the Tokyo CPI ex food and energy contracted 0.2% month-on-month, in October. Industrial production contracted 5.4% month-on-month, the jobs/applications ratio was at 1.16 and the unemployment rate at 2.8% in September.

The AUD/USD pair edged up 0.11% to 0.7552. Australian retail sales grew a better-than-expected 1.3% month-on-month, while private sector credit grew 0.6% month-on-month, in September. The producer price index grew 1.1% quarter-on-quarter and 2.9% year-on-year in the third quarter of 2021.

The NZD/USD pair edged down 0.15% to 0.7188. The USD/CNY pair inched down 0.01% to 6.3910 while the GBP/USD pair inched up 0.07% to 1.3798.

The euro was largely flat at $1.16855 after climbing as high as $1.1692 for the first time since Sep. 28 during the previous session. The European Central Bank (ECB) handed down its policy decision on Thursday, with comments by President Christine Lagarde interpreted by some as not going far enough in affirming the central bank’s dovish stance.

Lagarde’s “pushback was not forceful enough,” opening the way for the euro to test $1.1680 in the near term, TD Securities strategists said in a note. However, “extrapolating euro strength beyond that seems like a big ask a week ahead of the U.S. Federal Reserve’s meeting where assert tapering will be announced,” the note added.

Foreign exchange markets saw big moves as central banks, including the Bank of Canada and the Bank of Japan, handed down policy decisions earlier on the week. Meanwhile, the Reserve Bank of Australia on Thursday declined to buy a government bond at the heart of its stimulus program and continued the stance on Friday.

The Fed and the Bank of England (BOE) will hand down their policy decisions in the following week. While the Fed is expected to begin asset tapering from November onwards, BOE is expected to announce an interest rate hike.