Dollar Reaches 7-month High, Euro Falls to 4-month Low on Draghi Announcement

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By Brendel Balaga

The European Central Bank’s Mario Draghi announced that the bank will keep rates unchanged. The remarks strengthened the dollar. The president announced that the ECB is mulling potential changes to the stimulus plan, with adjustment as early as December.

The euro rose following comments that the ECB didn’t discuss reducing its asset purchase plan.

Gains were immediately reversed following the news that the ECB may adjust the current stimulus plan in December. Interest rates will remain at record lows.

Draghi states that the euro zone has benefitted from a moderate recovery and a rise in inflation. The euro zone suffered a setback following the uncertainty of Brexit. He stated that the euro zone remained resilient following Britain’s decision to leave the European Union.

The EUR/GBP is unchanged on the news.

The greenback benefitted from the news, with the dollar index reaching a seven-month high. The dollar index measures the strength of the greenback versus a basket of major currencies.

Mixed U.S. data caused a brief slip in the currency early in the day on Thursday.

United States existing home sales data showed a 3.2% increase in sales to 5.47 million units in September. Sales for the month rose from 5.30 million units in August. The announcement surpassed expectations of a 0.4% increase in sales in the month.

Negative data was further released on Thursday from the U.S. National Association of Realtors, which hampered sentiment. Initial jobless claims rose by 13,000 in the week ended October 15. Jobless claims hit 260,000 from the previous week. Analysts expected a rise in jobless claims of just 4,000, or 250,000 on the week.

The business conditions index reached 9.7 this month. Economists expected the index to be 5.3 on the month. The index was 12.8 in September.

EUR/USD fell to a four-month low on Thursday, tumbling 0.47% down to 1.0922. The dip was short-lived, with the currency pairing at 1.0928, erasing the losses.

Draghi will keep the euro zone’s quantitative easing program at €80 billion per month. The president stated that the bank will wait until economic forecasts in December are updated before making any changes to the asset purchase program.

The United States general election in November will play a major role in the currency pairing going forward.

The United Kingdom released mixed results on retail sales for September. Sales were flat on the month, missing expectations of a 0.4% rise. The month prior, sales retreated 0.2%. Year-on-year, retail sales rose 4.1% last month.

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