Dollar Sinks, Euro Hits 23-Month High on ECB, Mueller Probe

(Bloomberg) -- The dollar tumbled to an 11-month low and the euro surged to a 23-month high versus the greenback while rising against all of its G-10 peers as mixed signals by European Central Bank President Mario Draghi were followed by a report that U.S. special counsel Robert Mueller was investigating transactions linked to President Trump and some of his advisers.

The euro began its ascent after Draghi said the central bank will discuss in the autumn any plans for tapering quantitative easing. The dollar then declined sharply after the report on the Mueller investigation, weakening against most G-10 peers. The Bloomberg dollar index fell to its lowest since August as the investigation piled onto the dollar’s woes from earlier in the week after Republicans’ health-care bill stalled, casting doubt on other parts of the administration’s fiscal agenda.

• EUR/USD eclipsed the 2016 high at 1.1616 and may extend gains toward the August 2015 high at 1.1714, analysts said after Draghi’s press conference
• The ECB kept rates and policies on hold and kept its QE program at EU60b/month. No decision has been made on timing or form of any tapering, Draghi said. He said that “it’s basically the sense of the Governing Council that we have more confidence in taking a decision with more information than we have today.” The Council kept the timeline for discussions and tapering open, Draghi said. ECB staff will unveil new data in September; analysts interpreted the comments as dovish, but traders focused on tapering prospects even as officials later said a decision may take until October
• EUR/USD gained as Draghi sounded a positive tone on the economic outlook while expressing confidence that the ECB’s inflation target will be met over time, climbing to a fresh high at 1.1658 before offers slowed gains. The move above 1.1580 appeared to trip stops and was largely fueled by the Mueller report, traders and strategists said
• USD/JPY fell to a fresh low for the day at 111.48, its lowest since June 27, before paring its drop and recovering to the 112 area
• GBP/USD fell to its lowest in more than a week at 1.2933 before rebounding; GBP losses came ahead of, and despite, data showing stronger-than-expected retail sales. GBP selling appeared to order driven rather than news driven, London-based traders said
• Elsewhere, AUD gave up most of its gains from overnight after rising to a more than 2-year high at 0.7989 before offers capped; markets await a speech from RBA deputy governor that may shed light on the policy stance, which has been interpreted as more hawkish after the release of meeting minutes this week

To contact the reporter on this story: Dennis Pettit in New York at dpettit5@bloomberg.net.

To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Mark Tannenbaum