Dollar ends mixed, euro rallies after ECB Draghi comments on need for fiscal policy

Market Review - 13/09/2019  00:09GMT  

Dollar ends mixed, euro rallies after ECB Draghi comments on need for fiscal policy

The greenback ended mixed against its G4 peers on Thursday as reports of an interim deal between U.S. and China improved risk appetite, sending the yields higher. Euro erased its initial losses in post-ECB trading after an expected deposit rate cut to -0.5% from -0.4% and rallied across the board as the measures taken by ECB weren't as dovish as investors expected after ECB President Mario Draghi's comments.  
Bloomberg reported Trump administration officials have discussed offering a limited trade agreement to China that would delay and even roll back some U.S. tariffs for the first time in exchange for Chinese commitments on intellectual property and agricultural purchases, according to five people familiar with the matter, Bloomberg News reports.  Some of President Donald Trump's top trade advisers in recent days have discussed the plan in preparation for two rounds of face-to-face negotiations with Chinese officials in Washington, due to take place in coming weeks, the people said.  
Versus the Japanese yen, although dollar jumped ahead of Asian open on U.S. President Donald Trump's tweet to 108.16 Asian morning, price erased its gains and dropped to an intra-day low at 107.53 at New York open due partly to falling U.S. Treasury yields. However, the pair erased its losses and rose to a fresh 5-week high at 108.18 in New York on reports that U.S. may consider an interim deal with China before easing.  
Reuters reported U.S. President Donald Trump said on Wednesday the United States has agreed to delay increasing tariffs on $250 billion worth of Chinese imports from Oct. 1 to Oct. 15 "as a gesture of good will."    
Trump said the postponement came "at the request of the Vice Premier of China, Liu He, and due to the fact that the People's Republic of China will be celebrating their 70th Anniversary."  The tariffs were set to increase to 30% from 25% on the goods.  
The single currency went through a volatile session. Although euro moved narrowly in Asia and gained to 1.1031 in European morning, then briefly spiked up to 1.1069 ahead of New York open on ECB's rate decision, the pair swiftly erased its gains and tumbled to an 8-day low at 1.0928 at New York open after the central bank said it would restart its QE program. However, failure to penetrate September's 27-month trough at 1.0927 triggered short-covering and price later rallied to session highs at 1.1086 in New York after ECB President Mario Draghi hinted at the limits of monetary policy and called on governments to expand budget spending.  
Reuters reported the European Central Bank approved a fresh stimulus package as expected on Thursday, cutting interest rates and approving a new round of bond purchases to prop up euro zone growth and halt a worrisome drop in inflation expectations.  The ECB cut its deposit rate to a record low -0.5% from -0.4% and will restart bond purchases of 20 billion euros a month from November, it said in a statement.  With inflation falling, Germany skirting a recession and a global trade war sapping domestic confidence, the ECB had all but promised more support to the economy and the only question was how extensive stimulus would be.  
"The Governing Council expects (bond purchases) to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates," the ECB said in a regular policy statement.  Reuters reported European Central Bank President Mario Draghi said on Thursday that the euro zone economy was in a period of "protracted" economic weakness, with inflation staying low and the balance of risks tilted towards the downside.  "Incoming information since the last Governing Council meeting indicates a more protracted weakness of the euro area economy, the persistence of prominent downside risks and muted inflationary pressures," Draghi told reporters after a policy meeting.  Nevertheless, he said the bank expected the bloc's economy to eke out "moderate but positive" growth in the July-September quarter.  
The British pound traded sideways in Asia and gained to 1.2342 in European morning, then marginally higher to 1.2345 (Reuters) ahead of New York open. However, cable met renewed selling there and fell in tandem with euro to an intra-day low at 1.2284 at New York open before rallying to session highs at 1.2366 in New York on usd's weakness.  
In other news, Reuters reported U.S. President Donald Trump is prepared to keep or even raise tariffs on Chinese imports amid ongoing trade talks, Treasury Secretary Steven Mnuchin said on Thursday after both sides granted concessions ahead of the next round of negotiations.  Mnuchin, in an interview on CNBC, said U.S. officials are looking to make progress on when talks resume with lower level officials this month ahead of higher-level discussions with top officials in October. Protests in Hong Kong are not part of the negotiations, he added.  
Reuters reported President Donald Trump's trade advisers are not considering an interim trade deal with China that could delay some U.S. tariffs, CNBC reported on Thursday, rebutting a Bloomberg report that a limited deal was under consideration.  A senior White House official said an interim deal was 'absolutely not' on the table, CNBC reported.  On the data front, Reuters reported U.S. underlying consumer prices increased solidly in August, leading to the largest annual gain in a year, but rising inflation is unlikely to deter the Federal Reserve from cutting interest rates again next week to support a slowing economy.    
The Labor Department said on Thursday its consumer price index excluding the volatile food and energy components gained 0.3% for a third straight month. The so-called core CPI was boosted by a surge in healthcare costs and increases in prices for airline tickets, recreation and used cars and trucks. In the 12 months through August, the core CPI increased 2.4%, the most since July 2018, after climbing 2.2% in July.  Economists polled by Reuters had forecast the core CPI rising 0.2% in August and up 2.3% on a year-on-year basis.  
Data to be released on Friday:  
New Zealand manufacturing PMI, Japan industrial output, EU labour costs, trade balance and U.S. import prices, export prices, retail sales, retail sales ex-autos, business inventories, U Michigan sentiment prelim.  

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