US Dollar Approaches 2-Year Low Against Euro Following ECB Decision

Today was another light day of economic data, albeit we did have the initial jobless claims data for the week ended July 15th released.  The number of Americans filing for unemployment benefits for the first time last week totaled a seasonally adjusted 233,000 (245,000 expected) — a 15,000 decrease from the previous week’s revised level.  The four-week moving average of claims decreased 2,250 to 243,750, remaining well below the 300,000-threshold associated with a healthy labor market.  Also included in the Labor Department’s report, the number of continuing claims for week ended July 8th inched higher to 1.977 million, marking 13 consecutive weeks of sub-2 million continuing claims, as the labor market slack continues to diminish.

Internationally, the European Central Bank and Bank of Japan concluded their respective policy meetings today, both deciding to leave their current rate/monetary policy unchanged.  ECB President Mario Draghi reiterated the governing council’s plan to maintain its €60-billion-per-month ($70 billion) bond buying program, while failing to provide a firm date as to when future tapering discussions would commence.  “The last thing the governing council may want is an unwanted tightening of the financing conditions that . . . may even jeopardize [the recovery],” Draghi stated in the press conference following the meeting.  He also confirmed the fact that his stance had not changed since his (perceived to be hawkish) speech at the ECB Forum in Sintra last month, where he declared that deflation in the region was vanquished.  The euro approached a two-year high following Draghi’s press conference and is currently trading at $1.16/EUR.  In Japan, the central bank’s decision to hold steady its current ultra-loose monetary policy was highlighted by the cutting of its inflation forecasts for the next two years.  The BOJ reduced its inflation expectation from 1.4% to 1.1% for the year ending March 2018 and cut its forecast from 1.7% to 1.5% for the year after.  In doing so, the BOJ delayed its date for achieving the 2% inflation target and signaled that the existing stimulus would remain in place.       

US Treasurys traded within a tight range for a second consecutive session, with yields/swap rates declining 1-2 bps across the curve, seemingly unaffected by the policy statements from the foreign central banks.  All three major US stock indices were similarly near unchanged for the day, with the Nasdaq posting a slight gain of 0.08% as it touched a new record high for the third session in a row.  The US dollar resumed its decline, falling 0.3% to its lowest level in nearly a year against major currencies.  Crude oil prices retraced a portion of yesterday’s rally, as both WTI and Brent declined roughly 0.75% to $46.80/barrel and $49.25/barrel, respectively.