ECB Decision, Draghi Comments Sink Euro

The U.S. Dollar surged last week to a multi-month high, while the Euro fell to a three-month low after the European Central Bank extended its bond purchases, reducing the odds that it would hike interest rates in 2018. The Greenback was also underpinned by rising U.S. Treasury yields and increased risk appetite.

September U.S. Dollar Index futures settled for the week at 94.822, up 1.243 or 1.33% and the EUR/USD finished the week at 1.1607, down 0.0169 or -1.44%.

The details show that the ECB decided to prolong its bond buying program by nine months to September 2018, while leaving the door open to keep buying after that. It also said it would begin pairing its monthly purchases by half to 30 billion Euros ($34.90 billion) starting in January.

ECB President Mario Draghi said “an ample degree of monetary stimulus remains necessary”, as inflation has yet to show signs of a sustained upward trend.

In other news, U.S. Core Durable Goods came in better than expected at 0.7%. Weekly Unemployment Claims also improved. Advance GDP was also higher-than-expected despite the impact of two hurricanes.

Japanese Yen

The Dollar/Yen also posted a strong gain for the week but gains continued to be limited by the elusive 115.00 level. The Forex pair was mostly supported by rising Treasury yields. Its volatile two-sided trade last week was fueled by political uncertainty.

In other news, Japan’s core consumer prices rose 0.7 percent in September from a year earlier to mark a ninth straight rising month. However, the currency showed limited reaction to the news.

The USD/JPY settled at 113.668, up 0.173 or +0.15%.

Investor attention last week was primarily on candidates to head the U.S. Federal Reserve when current chief Janet Yellen’s term expires in February. President Trump is expected to announce his candidate before his upcoming trip to Asia in early November.

Speculators are betting Trump has whittled his choices to two candidates, Fed Governor Jerome Powell and Stanford University economist John Taylor. The latter is considered the more hawkish of the two so his selection should have a bullish impact on the dollar.

Australian Dollar

The Australian Dollar continued to lose ground to the U.S. Dollar. Last week, it plunged after taking out key technical support. The catalyst behind the selling was a weaker-than-expected quarterly consumer inflation report.

The AUD/USD finished the week at .7675, down 0.0139 or -1.78%.

Australian CPI was 0.6%, below the 0.8% estimate. Trimmed Mean CPI was 0.4% versus a 0.5% forecast. The news was disappointing because it likely means the Reserve Bank of Australia will refrain raising interest rates in 2018.

New Zealand Dollar

The New Zealand Dollar continued to plunge against the U.S. Dollar due to political upheaval in the country. Also pressuring the Kiwi was a rising U.S. Dollar. It was supported by a jump in U.S. Treasury yields in response to positive action toward U.S. tax reform, the appointment of a potentially hawkish Fed Chair and an improving economy.

The NZD/USD settled the week at .6872, down 0.0088 or 1.26%.

Last week, the new government in New Zealand announced a pledge to reform the Reserve Bank Act, which will likely mean an expanded role in the country’s central bank in foreign exchange rate controls, as well as a crackdown on foreign buyers of residential property and a range of social policies including lifting the age of free doctors’ visits and a plan to increase the minimum wage.