SYDNEY (Reuters) - The U.S. dollar got off to a flying start in Asia on Thursday hitting its highest in nearly a week against a basket of major currencies after the euro was downed by talk of more European Central Bank policy easing.
Also helping to underpin the dollar, minutes from the Federal Reserve’s October 29-30 policy meeting showed officials felt they might be able to start scaling back the bank’s massive asset-purchase program at one of its next few meetings.
“While this is a re-iteration of the Fed’s data dependency bias, the overall tone of the minutes is somewhat more hawkish than anticipated, suggesting the Fed can react quickly to any improvement in the data flow,” BNP Paribas analysts wrote in a note to clients.
The dollar index last stood at 81.032 .DXY, having climbed 0.4 percent on Wednesday in its biggest one-day gain in about two weeks. The euro skidded 0.7 percent to $1.3437, snapping an uptrend from the November 7 trough of $1.3295.
The common currency came into the crosshairs of investors after a Bloomberg report said the ECB was considering cutting its deposit rate, one of its two key interest rates, to below zero.
That would make it highly unattractive for banks to park cash with at the ECB and, hopefully, force them to lend instead. The aim would be to ultimately fuel a stronger economic recovery.
“Although the report does little in clarifying the balance of support on the Governing Council for such a move, it is another indication that lower inflation has strengthened the position of the doves,” BNP added.
An ECB spokeswoman declined to comment on the unsourced report, while another central bank official told Reuters the ECB, euro zone countries’ national central banks, and corporate lenders have adjusted their internal systems to cope with negative deposit rates should they come.
“But in contrast to the spring when such an option was heavily debated, the appetite for this has waned recently,” the official said.
In any case, investors were looking for an excuse to take profits on the euro and latched onto the news.
The common currency was sold heavily against the yen in particular, dropping 0.9 percent to 134.40. It hit two-week lows against sterling and the Swiss franc at 83.22 pence and 1.2280 francs.
The big fall in euro/yen helped drive a broad bounce in the yen, as the market scrambled to cut bearish positions in the Japanese currency.
That saw the dollar briefly dip below 100 yen, before crawling back up to 100.03. It was still within spitting distance of its recent 100.43 high.
Investors have been happy to use the yen as a funding currency to buy higher-yielding assets thanks to the Bank of Japan’s ultra-loose monetary policy, which the BOJ is certain to maintain at its meeting on Thursday.
Oddly, commodity currencies were hit even harder than the euro. The Australian dollar fell more than 1 percent against the greenback on Wednesday and last stood at $0.9327.
The Aussie could stay under pressure in the near term with Reserve Bank of Australia Governor Glenn Stevens likely to talk down the currency once again at a speech due at 0905 GMT.
Editing by Shri Navaratnam