NEW YORK: The dollar rose against major currencies on Thursday, reversing some of this week’s losses triggered by rising oil prices and global bond yields, while the euro fell after the European Central Bank delivered an expected rate increase.
The ECB raised interest rates by 25 basis points, marking the second time this year the central bank has moved to quell an energy-driven rise in inflation triggered by the Iran war.
The euro dropped immediately after the decision and was last down 0.03 percent against the dollar at USD1.163. Against the Swiss franc, the dollar strengthened 0.14 percent to 0.811.
The main driver of the dollar’s gains appeared to be US producer prices data, which came in in line with market expectations and boosted the chances of a Federal Reserve rate hike next week, said Eugene Epstein, head of structured products North America at Moneycorp.
“ECB rate hike odds have all increased so I would argue it was hawkish but I really think the main driver of the stronger dollar, which is the case across all currency pairs, is the PPI. I think markets are quite jittery ahead of tomorrow’s CPI, which is really the main event,” he said.
Iran-aligned Houthis seized control of Yemen’s port of Mocha on Thursday, posing a further threat to Red Sea traffic, while Gulf traffic remains restricted through the Strait of Hormuz as tanker attacks in the region have intensified in recent days.
Brent crude futures rose 5 percent to USD106.56 a barrel.
Given Europe’s reliance on imported energy, the euro is typically highly sensitive to oil-price movements. That relationship has weakened as the war has dragged on, limiting support for the dollar.
The dollar index rose 0.15 percent to 98.93, on track to snap three straight sessions of losses.
The yen was on track to retreat from three straight sessions of gains as the dollar edged higher. The yen has gained more than 6 percent since a late-July intervention. It traded down 0.41 percent at 154.14 per dollar, leaving the Japanese currency not far from seven-month highs ahead of an expected BOJ rate hike next week.
The euro strengthened 0.26 percent against the Japanese yen to 179.07.
Elsewhere, the Canadian dollar weakened 0.1 percent versus the greenback to CD1.382 per dollar while the pound sterling weakened 0.16 percent to USD1.3521.
China’s yuan held steady near a 3-1/2-year high at 6.710 per dollar.