Dollar gains; euro weaker on ECB easing talk

New York (Mar 27)   The dollar gained against the euro and other rivals as investors continued to react to the likely divergence in monetary policy in the wake of comments from the Federal Reserve suggesting a sooner-than-expected hike in interest rates.

Fed Chairwoman Janet Yellen said last week the central bank could potentially raise rates after a period of about six months from the end of its bond-buying program. That puts the first hike, or tightening of monetary policy, as early as next spring and surprised market participants.

At the same time, the euro has been under pressure on rising expectations the European Central Bank will move to further ease monetary policy in an effort to stave off deflation. The euro /quotes/zigman/4867933/realtime/sampled EURUSD -0.27%  changed hands at $1.3738, near its intraday low and down 0.34% on the day. $1.3750 is an important support level for the currency.

The shared currency has weakened since ECB officials this week, including Bundesbank President Jens Weidmann, signaled the central bank would consider negative deposit rates and a move toward outright quantitative easing.

The market is finally starting to realize the diverging policy agendas of the ECB versus the Fed, the [Bank of England], the [Reserve Bank of Australia} and the [Reserve Bank of New Zealand] and the unit has weakened markedly against all those currencies,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management.

The euro /quotes/zigman/4868097/realtime/sampled EURJPY -0.16%  fell 0.3% against the Japanese yen to ¥140.23. The euro fell 0.8% versus the Australian currency /quotes/zigman/4867884/realtime/sampled EURAUD -0.58%  to A$1.4837 and dropped 1.2% versus the New Zealand dollar /quotes/zigman/4867880/realtime/sampled EURNZD -1.20%  to NZ$1.5845.

Euro weakness earlier Thursday had been concentrated in the above crosses, which helped push the euro near the $1.3750 level, said Stephen Gallo of BMO in a note.

“It appears that the bar for the U.S. data to cross may be higher whilst the Fed is still expanding the size of its balance sheet,” he said.

The U.S. dollar rose versus the Japanese yen /quotes/zigman/4868099/realtime/sampled USDJPY +0.10% , fetching ¥102.08 versus around ¥101.90 in North American trade late Wednesday.

The ICE dollar index /quotes/zigman/1652083/realtime DXY +0.15% , which measures the currency against a basket of six rivals, rose 0.2% to 80.178. The WSJ Dollar Index /quotes/zigman/9625991/realtime XX:BUXX -0.02% , which measures the currency against a broader basket, edged higher to 73.32 from Wednesday’s close at 73.30.

The U.S. dollar added slightly to gains after the Labor Department said the number of people who applied for first-time weekly jobless benefits fell by 10,000 to 311,000 in the week ended March 20, the lowest level in four months. Economists had forecast claims of 320,000.

Also, the Commerce Department revised higher its estimate of fourth-quarter gross domestic product to an annualized growth rate of 2.6% from a previous estimate of 2.4%. A gauge of pending U.S. home sales fell 0.8% last month, the eighth decline in a row.

Source: MarketWatch