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While the ECB said it would reduce the monthly value of
purchases, they will continue until at least the end of next
year - longer than the market expected - and were accompanied by
a handful of other measures judged as negative for the single
currency going forward.
That drove a more than 2-cent fall on Thursday, and the euro
fell another half percent in morning trade in Europe, reaching
$1.0563 <EUR=>, putting it within half a cent of this year's
lows and a cent of longer term lows at which the dollar's rally
topped out last year.
The dollar also gained almost 1 percent against the yen to top
115 yen for the first time since February. <JPY=>
"Obviously we had the ECB yesterday and there is still some
momentum after that. The dollar has also risen against the yen
this morning," said Josh O'Byrne, a strategist with Citi in
London.
"We're constructive into the end of the year. The market has
potentially more room to price higher inflation next year,
dollar rates should pick up on the back of that and that should
support the dollar."
There is debate over the nature of the slowdown of the dollar's
rally in the past 10 days.
Most major investment houses forecast the U.S. currency to be
strong next year on the back of promised measures on growth and
taxation from a Trump administration. But there is more
hesitancy about where gains will be focused; many think betting
against the Chinese yuan or South Korean won may make more sense
than the euro.
Roger Hallam, chief investment officer for currency management
with JP Morgan Asset Management in London said he would expect
the dollar to reach $1.02-1.03 per euro although he was not
persuaded of forecasts for it to pass parity.
"We are still pretty positive on the dollar. We think Trump will
be quite supportive for growth next year... and we think the
market is underpriced for (rises in interest rates by) the Fed,"
he said.
"There has been a huge amount of dollar selling in the past
week... so I don't think people are as long of the dollar as
they might like to be."
A rise in Federal Reserve interest rates next week seems fully
priced in to markets, and it may take a more bullish signal on
further rises next year from Fed chair Janet Yellen to provoke
more gains.
But U.S. interest rates are already far higher than the
equivalents in Japan and Europe and the broader economic and
policy outlook still also points in opposite directions.
The dollar index was up 0.4 percent on the day at 101.53 <.DXY>
after a 1 percent rise on Thursday, on track to gain just under
0.5 percent on the week.
(Editing by Toby Chopra)
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