The U.S. dollar traded lower across the board on Wednesday, after its main rival, the euro, strengthened. The shared currency stepped higher after European Central Bank officials signaled they’re ready to ramp up discussions on ending the central bank’s massive bond-buying program.
What are currencies doing?
The ICE U.S. Dollar Index DXY, -0.34% which measures the buck against six rivals, fell 0.4% to 93.495. The broader WSJ Dollar Index BUXX, -0.24% lost 0.3% to 86.81.
The euro EURUSD, +0.4693% climbed to $1.1782 from $1.1720 late Tuesday in New York, hitting its highest level since May 21.
The British pound GBPUSD, +0.1344% also traded around a two-week high, rising to $1.3430 from $1.3395.
Against Japan’s yen USDJPY, +0.23% the dollar rose to ¥109.94 from ¥109.79.
The buck gave back Tuesday’s gains against the Canadian dollar USDCAD, -0.4242% and Mexico’s peso USDMXN, -0.8123% , after hitting multimonth highs against both currencies. One dollar last bought C$1.2878, down from C$1.2967, and 20.2813 pesos, versus 20.459 pesos late Tuesday.
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What’s driving markets?
The euro swung higher after two ECB officials on Wednesday indicated the bank’s meeting on June 14 will cover the timetable for winding down its €2.5 trillion ($2.94 trillion) program of bond buying, or quantitative easing.
The comments by ECB Chief Economist Peter Praet and ECB policy maker Jens Weidmann appear to back up a Bloomberg report published Tuesday that the central bank will discuss QE’s end when policy makers gather in Riga, Latvia. The euro climbed above $1.17 after Tuesday’s report.
“Next week, the Governing Council will have to assess whether progress so far has been sufficient to warrant a gradual unwinding of our net purchases. In making its assessment, it will consider the underlying strength of the euro area economy and the pass-through to wage and price formations,” said Praet in prepared remarks for a speech in Berlin.
Meanwhile, Weidmann said market expectations for the central bank to end quantitative easing this year are plausible, according to media reports.
The ECB has previously said it plans to run the program — which purchases debt from eurozone countries and corporate debt from European companies — until the end of September. But it has left itself the option of continuing the purchases if needed to help eurozone inflation reach the ECB’s target of just below 2%.
Elsewhere, the peso slightly recovered after hitting a multimonth low against the dollar in the prior session, as trade tensions surround Mexico and the U.S. The Mexican government late Tuesday published a list of U.S. goods — including bourbon, pork and cheese — that will face import tariffs. That’s a retaliatory move after the U.S. said it would place duties on Mexican steel and aluminum.
But investors will keep watching trade-related developments after Treasury Secretary Steven Mnuchin reportedly urged President Donald Trump to exempt Canada from metals tariffs at a meeting Tuesday. That adds to a report Wednesday that China had offered to buy some $70 billion of U.S. goods to get the Trump administration to cool its tariff threats.
Leaders of the Group of Seven nations will likely discuss trade as they hold talks in Canada on Friday and Saturday.
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What are strategists saying?
Next week’s ECB meeting “will be an exciting one,” wrote Carsten Brzeski, chief economist covering Germany and Austria at ING.
“Even though some market participants will take today’s comments by Peter Praet as a prelude of an imminent decision next week, we still don’t think that the ECB will easily give away flexibility and room for maneuver on QE in a situation in which downside risks to the economic outlook have increased and political risks — be it from Italy or later this year from Brexit — could easily re-emerge,” said Brzeski in a note.
“Against this background, clear hints at [the] end of QE, while keeping full flexibility, at next week’s meeting still looks like the most likely outcome,” he said.
What else is in focus?
Data out Wednesday showed the U.S. trade deficit fell to a seven-month low as exports set a fresh record in April, before the Trump tariffs took effect.
Productivity, on the other hand, underperformed consensus estimates, coming in at 0.4% in the first quarter, versus 0.6% expected. Unit labor costs were in line with estimates at 2.9%.
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In other assets, U.S. stock benchmarks advanced, with the exception of the Nasdaq Composite COMP, +0.23% , which was slightly in the red after the prior day’s rally. U.S. Treasury yields also rose, and the 10-year note TMUBMUSD10Y, +1.66% last yielded 2.960%.