Dollar strengths; euro falls ahead of the ECB meeting

LONDON (Reuters) – The dollar strengthened on Thursday, reversing its weakening trend over the past seven days, while the euro slipped ahead of a meeting of the European Central Bank where policy makers could intensify stimulus measures.

The ECB is expected to increase the size of its $ 750 billion. Euro ($ 840 billion) Pandemic Emergency Purchase Program (PEPP) to support Europe’s weakest economies – though some investors believe this will happen at the July meeting rather than today.

The euro has gained about 3.6% against the dollar since France and Germany proposed an EU-wide recovery fund to share the costs of the coronavirus crisis on May 18.

But on Thursday it changed course, falling 0.3% to $ 1.1202 at 1025 GMT EUR = EBS.

Kenneth Broux, FX strategist at Societie Generale, said it was consolidating recent gains as the market waits to see the outcome of the ECB meeting.

“The Euro-dollar is technically overbought, so there is a good reason to make some profit. That doesn’t mean we can’t go any higher over the next week or two, ”he said.

Broux said there is potential for market disappointment today as the market expects the ECB to increase the PEPP program. If they do not, the euro could return to 1.07 against the Swiss franc EURCHF = EBS and the euro dollar could fall below 1.12 this afternoon, he said.

One argument against the ECB announcing more policy easing on Thursday is the slow progress of the EU’s efforts to finalize its proposal for a recovery fund. The ECB could endure to keep pressure on EU political leaders.

“For the EUR, the direct implications of increasing PEPP size are limited, but combined with the evolving recovery fund, the implicit enhancement of policy responsiveness is positive,” said Adam Cole, chief currency strategist at RBC Capital Markets.

But Commerzbank’s currency and EM analyst Thu Lan Nguyen said any additional gains for the euro could be limited by a large amount of positive economic news already priced by investors.

“The most important question remains, and is whether the crisis will leave permanent damage, and if so, how pronounced this will be,” she said.

The central bank delivers its political decision at. 1145 GMT, and ECB President Christine Lagarde will hold a news conference at 1 p.m. 1230 GMT.

(Graphic: Euro, here)

The dollar rose around 0.2% against a basket of currencies as it weakened in the past week as global markets grew more optimistic in terms of economic recovery = USD. USA. Currency began to become stronger in trading at night, picked up more sharply between 0600 GMT and 0840 GMT and then began to weaken again.

The safe-haven Japanese yen fell to new lows in two months compared to the U.S. dollar, 109,165, around 0830 GMT. JPY = EBS.

Risky currencies receded from recent highs. The Australian dollar fell about 0.3% to $ 0.6899, after hitting a low of $ 0.6888 AUD = D3.

Australian retail sales suffered a historic fall in April while trade surpluses narrowed as the corona virus hit the economy, leaving the nation as its worst contraction ever in the current quarter.

The Norwegian krone fell from the last three-month highs to the dollar and euro NOK = EURNOK = D3.

Goldman Sachs analysts recommended in a note to clients that investors are missing USD / NOK.

“The currency offers attractive exposure to a number of cyclical factors that appear to turn from headwind to downwind, such as higher oil prices and improving growth in Europe,” they wrote.

OPEC + oil producers could still hold a virtual ministerial meeting this week if Iraq and others who have not fully complied with current oil supply cuts agree to increase their connectivity, three OPEC + sources told Reuters.