Currencies: Euro slips on ECB’s gradual taper decision, gives dollar room to run ahead of press conference

The euro sold off and gave a popular dollar gauge room to rally after the European Central Bank announced that it would taper its asset purchases yet again in October. Traders are now looking ahead to ECB President Mario Draghi’s press conference for more color on the decision.

The ECB declared it would leave interest rates on hold until mid-2019. While that’s broadly in line with market expectations, it also adds another year of rising rates in the U.S. versus ultralow rates in the eurozone.

“Markets have seen rates and the euro move lower, as the ECB’s guidance on rates has ruled out a June [2019] rate hike, so markets have had to reprice,” said Jacqui Douglas, chief European macro strategist at TD Securities. “But with an upbeat press conference likely on the way, we think that this will put out a floor under the euro.”

The euro EURUSD, -0.9075%  had been stronger going into the decision, as market participants hoped for the central bank to take a hawkish stance and outright end its quantitative easing program. But as they didn’t get what was hoped for, the euro reversed and last bought $1.1725, down from $1.1791 late Wednesday.

Draghi’s press conference is due to start at 8.30 a.m. Eastern, or 1.30 p.m. London time.

Meanwhile, the ICE U.S. Dollar Index DXY, +0.59% which is heavily weighted with the exchange rate for euros, turned positive following the ECB decision. It was last up 0.2% at 93.879, while the broader measure of the WSJ Dollar Index BUXX, +0.30%  was up 0.1% at 87.22.

The ECB’s cautiousness stood in contrast to Wednesday’s move by the Federal Reserve. The Fed raised its key interest rate by 25 basis points to a range of 1.75% to 2%, increasing the rate divergence between the U.S. and its developed-world peers. In addition, the Fed indicated a shift in its thinking, projecting a total of four rate increases this year, instead of the three previously indicated.

Read: The ECB, not the Fed, is the match that will spark bond market volatility: analyst

On Friday, the Bank of Japan will conclude this central bank-heavy week and publish their monetary policy update, which is expected to leave interest rates unchanged. Versus the Japanese yen USDJPY, -0.08%  the dollar slipped to ¥110.09 from ¥110.34 late Wednesday in New York.

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