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Dollar close to highs, crisis in Spain keeps euro on backfoot

10/30/2017, 11:05:16 AMTrading Strategies
Dollar close to highs, crisis in Spain keeps euro on backfoot

The dollar hovered near three-month highs against a currency basket on Monday, while the euro nursed losses after the European Central Bank and unrest in Spain's Catalonia led it to post its worst week this year.

The dollar index, which tracks the greenback against a basket of six major rivals, dipped 0.1 percent to 94.857 (DXY) but remained not far from Friday's three-month high of 95.150.

The euro was steady at $1.1605 , after plumbing a three-month low of $1.1574 on Friday, and losing 1.6 percent for the week, its worst performance in 11 months.

On Saturday, sacked Catalonian president Carles Puigdemont called for peaceful "democratic opposition" to the central government's takeover of the region following its unilateral declaration of independence from Spain.

On Thursday, the ECB said it will extend its bond purchases into September 2018 while reducing its monthly purchases by half to 30 billion euros starting in January. The move led investors to bet that the central bank would not begin hiking rates until 2019.

"The ECB wanted to keep its accommodative policy longer, to achieve its inflation goal," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities.

"So the latest downward movement in the euro was expected, and I think it will continue for a while," he said. "Until the Catalonian situation settles, it will remain a headwind."

In contrast with the ECB, the U.S. Federal Reserve is expected to begin raising interest rates, perhaps as early as December.

The Fed will hold a two-day policy meeting on Tuesday and Wednesday at which it is expected to leave rates unchanged.

President Donald Trump is leaning toward nominating Fed Reserve Governor Jerome Powell to be the next head of the U.S. central bank, two sources familiar with the matter said on Friday. Trump will announce his nominee this week.

The dollar was steady against the yen at 113.69 , after notching a three-month high of 114.45 yen on Friday.

At its own two-day meeting ending on Tuesday, the Bank of Japan is set to keep intact a pledge to guide short-term interest rates at minus 0.1 percent and the 10-year Japanese government bond yield around zero percent.

BOJ Governor Haruhiko Kuroda is the leading candidate for a second five-year term when his current one ends in April, the Nikkei business paper reported on Saturday, which would likely mean continuation of the bank's ultra-easy monetary policy.