FOREX-Euro rises from 5-week lows, outlook still weak

Thu Jan 9, 2014 4:02pm EST

Related Topics

* Euro recovers from five-week low vs dollar after Draghi
comments
    * ECB leaves rates unchanged
    * Focus shifts to U.S. non-farm payrolls data
    * Canadian dollar continues slide

    By Curtis Skinner
    NEW YORK, Jan 9 (Reuters) - The euro recovered from
five-week lows against the dollar on Thursday following cautious
comments on the euro zone economy by European Central Bank
President Mario Draghi, but the outlook for Europe's single
currency remains weak.
    After the central bank left its main interest rate unchanged
at a record low of 0.25 percent, Draghi said the central bank is
monitoring money market conditions and hinted that there may be
downside risks to its current view on inflation.
  
    The euro fell as low as $1.3547, its lowest since Dec. 5, 
after Draghi's comments. It last traded at $1.3605, up
0.23 percent on the day. 
    The ECB's view stands in contrast with the Federal Reserve,
which is winding down its asset-buying program. Relative
interest rates should continue to favor the dollar over the
euro.
    "The fact that the ECB enhanced its forward guidance means
they're strengthening their dovish bias at a time when the
Federal Reserve is hardening its commitment to tapering asset
purchases," said Kathy Lien, managing director at BK Asset
Management in New York.
    On the U.S. economic front, Thursday's better-than-expected
initial weekly jobless claims data and an upbeat report on
private sector jobs growth released on Wednesday reinforced the
positive outlook for for the U.S. economy and the labor market,
supporting the Fed's decision to pare its bond purchases. 
    Against the yen, the single currency also traded up 0.11
percent at 142.50 yen.
    "The early losses were really just on the back of the
strengthening of the forward guidance," said Camilla Sutton,
chief FX strategist at ScotiaBank in Toronto.
    "I think the market's takeaway was that the ECB appears
fairly comfortable with where they sit right now. I think for
many, that's somewhat of a euro-positive and helped to erase
some of those losses early on."
    With the ECB out of the way, market participants are now
focused on Friday's U.S. non-farm payrolls report. 
    Analysts expect payroll growth of 196,000 jobs in 
December. The report may provide more clues as to how quickly
the Fed will cut back on its bond-buying program this year.
    "Expect a positive number in the area of 220,000 to prove
positive for the stock market and negative for the U.S. dollar,"
said Michael Woolfolk, global market strategist managing
director at BNY Mellon in New York. "We're looking for risk
appetite to be prevalent."
    Earlier in the session, the number of Americans filing new
claims for unemployment benefits last week fell slightly more
than expected to a seasonally adjusted 330,000, pointing to an
economy that was continuing to gain steam. 
    Against the yen, the dollar last traded 0.08 percent lower
at 104.75 yen.
    The Canadian dollar continued its fall on Thursday, hitting
a more than four-year low against the U.S. dollar. The greenback
hit a high of C$1.0874 in the day's trading, and was last up 0.3
percent to C$1.0853.
    "A weak trade report from Canada juxtaposed against a strong
trade balance from the US reminded markets of the uncertainty
that overhangs the Canadian export market," ScotiaBank's Sutton
said.
    The euro and the pound have both reached multi-year highs
against the loonie since the start of the new year. The euro was
last up 0.52 percent to C$1.4764 and sterling was last
ahead 0.66 perecnt to C$1.7887, according to Reuters
data.
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