Yellen Offers No Comfort for Dollar; Euro Soars After Draghi

(Bloomberg) -- The dollar sank and the euro surged as markets focused on central bank speakers including Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi.

The euro rose to the highest level in 10 months versus the dollar as Draghi offered upbeat remarks, telling an ECB symposium that “while there are still factors that are weighing on the path of inflation, at present they are mainly temporary factors that typically the central bank can look through.” Later, Yellen offered little in the way of hawkishness, denying expected support for the dollar, which dropped to a two-week low.

Yellen Offers No Comfort for Dollar; Euro Soars After Draghi
  • Draghi also cautioned that “a considerable degree of monetary accommodation is still needed for inflation dynamics to become durable and self-sustaining,” signaling no haste to fully dismantle the ECB’s asset-buying program, which is set to run at EU60b per month until the end of 2017. Traders took his remarks as opening the door a crack to the removal of some of the central bank’s stimulus
  • Yellen steered clear of monetary policy at an event in London. Instead, she said Fed is trying to think "outside the box" in looking at risks and reiterated that "it will be appropriate to raise interest rates very gradually"
  • EUR/USD is trading near session high of 1.1349, its highest since Aug. 23. Euro buying was seen on a broad front as fresh cross trades were also initiated, boosting the euro vs nine of its G-10 peers; EUR rose as much as 1.9% vs JPY to its highest level in nearly 15 months
    • EUR is heading for it fourth consecutive monthly gain, something not seen since late 2013, said Shaun Osborne, global head of FX strategy at Scotia. 1.09 area now seen as “major, long-term support and now have to start thinking a bit more seriously about a push up to 1.17/1.18 in the months ahead from a technical point of view” 
  • While dollar fell against most G-10 peers, USD/JPY gained some lift from a rise in U.S. Treasury yields and rose to its highest in more than a month. The pair traded at a session high of 112.47, before paring gains to trade around 112.15
  • CHF surged to a 2017 high at 0.9593 and stayed nearby after Nestle announced a CHF20b buyback operation over the next 30 months as it takes steps to ward off an activist hedge fund. USD/CHF may find find support at Nov. 9 low of 0.9550
  • Clouding the USD outlook, the IMF cut its forecast for the U.S. economy, removing assumptions for fiscal stimulus from President Trump’s plan to cut taxes and boost infrastructure spending. The IMF said the U.S. will probably have a hard time hitting Trump’s target of 3% annual growth, as it’s faced with problems ranging from an aging population to low productivity growth