EUR/USD fell 0.6% to 1.3222 by early afternoon in New York, with the euro pushed lower by ECB President Mario Draghi’s long-term commitment to low rates and the dollar bolstered by improving jobless claims and upbeat manufacturing reports that increase the likelihood of tapering of the Fed’s stimulus occurring in the near future.
Mr Draghi said he expects economic activity to stabilise in the eurozone, based on recent indicators, and that monetary policy will remain accommodative for an extended period. ‘The Governing Council confirms that it expects the key ECB interest rates to remain at present or lower levels for an extended period of time,’ he said in the latest piece of forward guidance. The ECB introduced forward guidance for the first time last month, following in the footsteps of the Fed in trying to increase clarity about the future for central-bank action.
Mr Draghi added that ‘Current expectations of rate hikes in money markets are, according to our assessment, unwarranted,” and that ‘Developments have to be significantly better than our current baseline scenario for our outlook for price stability in order for us to change guidance.’
US initial jobless claims came in much lower than had been expected, falling 19,000 to 326,000 when a survey conducted by Reuters ahead of the release of the data had shown a consensus estimate of 345,000.
Both the ISM manufacturing index and Markit’s PMI manufacturing survey showed manufacturing activity picking up significantly in July. The Fed has said that its decision to reduce the pace of its monthly asset purchases will be based on incoming economic data and so the better-than-expected nature of these economic reports increases the chances of such a scaling back and therefore has strengthened the dollar.