LONDON (AFP/APP): The dollar sank to a three-year euro low Thursday after two of Donald Trump’s top cabinet members talked down the currency and hinted at a more belligerent trade policy.
The greenback bounced back a little as dealers waited for the European Central Bank’s latest monetary policy decision, due at 1245 GMT.
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. US Treasury Secretary Steven Mnuchin had declared in the Davos gathering of the political and business elite on Wednesday that a weak dollar was “good” for the world’s top economy because it boosted trade opportunities.
His remarks sent the under-pressure US unit tumbling further, with analysts suggesting it could be a part of the Trump administration’s America First policy to help its own exporters.
In early morning London deals, the euro shot higher to $1.2459, etching out its highest level since mid-December 2014. It stood at $1.2423 nearing the ECB decision.
William Hamlyn, equities analyst at Manulife Asset Management, told AFP that dollar’s slide was in line with the currency’s long-term trend. “I think people are forgetting that Mnuchin does not set the value of the dollar,” Hamlyn told AFP.
“His comments definitely pushed the dollar down, and it is all about sentiment. But Mnuchin is not a central banker.”
Hamlyn added: “The fact (is) that we have come from a place a year ago where the dollar was overvalued.”
The euro meanwhile remains on an upwards trajectory on the back of brightening optimism over the eurozone economy.
The dollar’s sell-off has also been helped by investors betting on tighter monetary policies by major central banks, in line with the Federal Reserve.
Mnuchin’s remarks came after the single currency was already stoked by the minutes of the ECB’s December’s meeting, which revealed governors plan to “revisit” policy early this year.
Later on Thursday, financial markets will hang on ECB president Mario Draghi’s every word, putting pressure on him to play down talk of reducing stimulus.
“We are seeing a degree of anticipation come into play today, with the ECB meeting bringing a heightened chance that Mario Draghi will seek to talk down the euro once again,” noted IG analyst Joshua Mahony.
“There is reason to believe that Draghi will choose to find a more dovish tone once more in an attempt to alleviate the pressure caused by a rising euro.” A strong euro weighs on eurozone exporters whose goods become more expensive for buyers using weaker units.
In equities, European markets mostly rose on Thursday with investors buoyed by upbeat data from Germany, the region’s biggest economy.
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.