Euro knocked lower by dovish ECB, US jobs data next
SYDNEY (Reuters) - The euro traded at one-month lows against the dollar early on Friday, having suffered a bit of a setback after the European Central Bank notched up its dovish rhetoric following a widely expected decision to leave interest rates unchanged.
ECB President Mario Draghi said the Governing Council was unanimous in its commitment to also using "unconventional instruments within its mandate in order to cope effectively with risks of a too prolonged period of low inflation".
Long used to seeing the ECB drag its feet on any actual policy action, investors half took the bait and sold the euro. The common currency dipped a modest 0.3 percent as a result, falling to a low of $1.3698 before edging back to $1.3718.
Against the yen, the euro slipped to 142.59, pulling away from a four-week peak of 143.48 set on Wednesday.
"We continue to believe that the ECB is running unnecessary risks in its slow response to low inflation and expect non-conventional monetary easing measures before year-end," analysts at Barclays Capital wrote in a note to clients.
The unconventional instruments included quantitative easing, the printing of money to buy assets, measures that previously were considered highly undesirable by some euro zone central bankers.
The setback in the euro saw the dollar index .DXY climb to its highest level since Feb 27. The greenback also extended gains on the yen, popping above 104.00 for the first time since Jan 23. It last traded at 103.93 yen.
Traders said the dollar could move higher still if U.S. non-farm payrolls due later in the day surprised on the upside. Analysts polled by Reuters expect the economy to have created 200,000 jobs in March.
Hopes are growing that U.S. growth will accelerate as the grip of a harsh winter loosens.
"We think a number near consensus would provide more reassurance that the U.S. economy is emerging from its winter freeze and would be sufficient to maintain and extend the USD's gains seen earlier this week," analysts at BNP Paribas said.
Such an outcome would come as a relief to Australia's central bank, which has long complained that the Aussie dollar is historically high.
Earlier this week, the Aussie climbed a four-month peak of $0.9310, although it has since retreated toward$0.9200.
Any renewed vigor in the greenback could see AUD/USD target $0.9190, then $0.9152, the 38.2 percent and 50 percent retracement levels of the March 20 to April 1 rally.
Asia is void of any meaningful economic data on Friday, leaving the focus squarely on U.S. jobs report.
(Editing by Leslie Adler)