Currencies: Dollar resumes slide as euro nears 3-year high

The U.S. dollar returned to the red against most major currencies in Thursday trading, its move especially pronounced against a euro that neared a three-year high.

The buck had advanced on Wednesday, maintaining that move with the afternoon release of murky Federal Reserve meeting minutes, a recovery that halted a five-session skid that had driven the leading dollar index to a roughly three-month low.

Where are currencies trading?

The ICE U.S. Dollar Index DXY, -0.32% which gauges greenback against a half-dozen currencies, fell 0.3% to 91.8990. The broader WSJ U.S. Dollar Index BUXX, -0.18% which measures the buck against a wider range of currencies, fell 0.2% to 85.66.

The euro EURUSD, +0.4412%  rose to $1.2066 from $1.2014 late Wednesday in New York, putting the shared currency back around its highest level against the buck since January 2015. The euro’s move above $1.20 earlier this week was its first visit above that threshold in 3 1/2 months.

The pound GBPUSD, +0.2294% meanwhile, firmed to $1.3552 from $1.3516 on Wednesday.

The dollar did trade fractionally higher against its Japanese counterpart, with the greenback USDJPY, +0.10%  buying ¥112.64, compared with ¥112.51 on Wednesday.

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What’s driving the markets?

The final reading on the eurozone’s services purchasing managers’ index came in better than expected, printing at 56.6. That was higher than 56.5 preliminary reading and up from 56.2 in November. The composite PMI also rose more than forecast, coming in at 58.1, up from 57.5 in November.

Analysts said the dollar strength Wednesday was more a pause from the selloff rather than a turnaround for the U.S. currency and Thursday’s renewed slide affirmed that stance. The release of the FOMC minutes revealed that committee members were divided over the number of expected rate hikes in 2018. The Fed’s official forecast projects three increases. Among the uncertainties, the committee further expects a modest increase of capital spending on the back of the tax reform plan, but is skeptical about lasting economic impact.

As for the yen, an upbeat reading in a manufacturing PMI report, which despite missing the preliminary figure slightly was still the highest since February 2014, underscored a steady economic growth picture into 2018. The Nikkei stock average soared to a 26-year high in its first trading day of 2018 on Thursday.

And in the U.K, the Bank of England said Thursday that lenders approved 65,139 home loans in November, up from 64,887 a month earlier, but still below the 66,562 approved on average over the previous six months. The figures came alongside data from lender Nationwide Building Society that showed house prices in the U.K. rose a modest 2.6% on year in the final month of 2017, markedly slower than the 4.5% growth notched up a year earlier.

What are strategists saying?

“The dollar index failed to gain any momentum, as the FOMC minutes confirmed that the Fed is in no rush in adopting any aggressive methods with respect to their interest rate hike,” said Naeem Aslam, analyst with Think Markets. “Gradual interest hike was the primary message for the markets from the FOMC minutes yesterday and this made investors to push the Treasury yields higher.”

Regarding dollar-yen, “there could be an expectation of the [Japanese] labor market delivering an increase in wages, which could in turn boost spending and inflation. Should that be the case we could see an ending in the monetary easing of BoJ, however the scenario is still considered as far fetched,” said Peter Iosif, strategist at IronFX Global. “Should the bulls take the reins, the pair could break the 112.90 resistance line and aim for the 113.15 resistance level.”

What U.S. economic data are coming up?

The ADP private payrolls report is scheduled for release at 8:15 a.m. Eastern Time. The reading is seen as a precursor to the closely watched nonfarm payrolls report on Friday, although the two data sets sometimes vary widely.

Staying in the jobs arena, weekly jobless claims for last week are due at 8:30 a.m. Eastern. That release is followed by the Markit services purchasing managers’ index for December at 9:45 a.m. Eastern.

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