Euro braces for ECB stimulus as dollar rides high after Yellen

The euro hovered near a 7-1/2-month low against the dollar as investors braced for the European Central Bank to roll out more stimulus, giving an extra boost to the U.S. currency after it scaled new heights on the prospect of a Federal Reserve rate hike.

The divergence in monetary policy between the two currencies was highlighted anew on Wednesday when Federal Reserve Chair Janet Yellen hinted at a rate hike later this month.

Her hawkish comments sent the euro to $1.05500, its lowest level against the greenback since mid-April, though profit-taking ahead of the ECB’s policy announcement helped to push the single currency back to $1.0610 EUR=.

The dollar’s index against a basket of six major currencies .DXY =USD rose overnight to as high as 100.510, its highest level since April 2003, and last stood at 100.02.

Yellen said she was “looking forward” to a U.S. interest rate hike, expressing confidence in the U.S. economy.

The dollar also rose to 123.68 yen JPY=, a two-week high, on Wednesday, before paring gains as a big fall in oil prices prompted traders to ease off on riskier trades.

Data showing U.S. private employers added a larger-than-expected 217,000 jobs in November also boded well for Friday’s job data, easing concerns sparked by a soft U.S. manufacturing data on Tuesday.

For now, however, all the focus is on the ECB, which is expected to deliver a cocktail of measures that could include a deposit rate cut and changes to its asset-buying program.

While the ECB’s policy is expected to keep a tab on the common currency, some market players see a chance of short-covering in the near term.

“The market has been discussing this for more than a month so I would think any easing steps it may take today are already priced in and the euro could rise,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

Elsewhere, the Australian dollar slipped 0.3 percent to $0.7286 AUD=D4 after the country posted a larger-than-expected trade deficit.

Source: Reuters