CURRENCIES: Dollar Index Jumps To 3-month High As ECB-fueled Euro Slump Continues

By Sara Sjolin, MarketWatch Features Dow Jones Newswires

ICE Dollar Index set for best week since December

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A key dollar index climbed to a more than three-month high on Friday after encouraging signs for Trump's promised tax reforms. The euro continued to slide after the European Central Bank said it'll extend its quantitative-easing program.

What are currencies doing?

The euro dropped to $1.6131, down from $1.1653 late Thursday in New York and $1.1813 on Wednesday. That puts the shared currency on track for a 1.3% weekly slump, which would mark its worst week since February.

Meanwhile, the pound also got creamed, fetching $1.3078 compared with $1.3160 late Thursday in New York.

Against the yen , the dollar bought Yen114.10, up from Yen113.99 on Thursday.

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The Australian dollar dropped against the greenback, falling to $0.7642 from $0.7661 on Thursday.

The broad-based gains for the buck helped the ICE Dollar Index rise 0.2% to 94.828, to trade at the highest level since July 20, according to FactSet data. That means the index is set for a 1.2% weekly jump, the biggest since December last year.

What's driving the market?

Dollar investors were encouraged by signs the Trump administration is getting closer to winning support for its promised tax reforms. The House of Representatives on Thursday passed a budget blueprint that's key to the Republicans' tax-cutting goals (http://www.marketwatch.com/story/house-narrowly-passes-budget-in-critical-step-for-republicans-tax-plan-2017-10-26), seen as moving one step closer to a major tax reform.

For the euro, a dovish ECB on Thursday pulled the plug on the shared currency, sending it to a three-month low against the dollar. The central bank said it'll reduce its asset purchase program (http://www.marketwatch.com/story/draghi-averts-taper-tantrumfor-nowas-ecb-begins-slow-walk-to-normalization-2017-10-26) to EUR30 billion a month from the current pace of EUR60 billion, but also extend it for at least nine months until September 2018.

Read: Is the euro rally over, now that the ECB has pulled the trigger? (http://www.marketwatch.com/story/is-the-euro-rally-toast-after-ecb-unveils-dovish-bond-buying-reduction-2017-10-26)

In the U.K., the pound was weighed by continued uncertainty over the country's Brexit negotiations with Brussels. Another drag was a report Thursday that showed high street sales in October plunged at their fastest rate since 2009.

Meanwhile in Australia, deputy prime minister Barnaby Joyce and four other politicians have been ousted from the government (http://www.marketwatch.com/story/five-australian-lawmakers-including-deputy-prime-minister-ousted-government-loses-majority-2017-10-27) after a court ruled their dual citizenship meant they couldn't hold office.

What are strategists saying?

"There are myriad reasons for the current forex landscape. The greenback is benefiting from the (gradual) progress of Donald Trump's tax plans, alongside the relative certainty of a December rate hike from the Federal Reserve. This meant the currency was ready to pounce on the pound and the euro after both were softened up on Thursday," said Connor Campbell, financial analyst at Spreadex, in a note.

"I think the dollar is in a great spot now and looks poised for further medium-term gains. Nonetheless, it's had an unusually good week, having gained against all the other G-10 currencies. There could be some profit-taking and position-closing ahead of the weekend," said Marshall Gittler, chief strategist at ACLS Global, in a note.

(END) Dow Jones Newswires

October 27, 2017 05:05 ET (09:05 GMT)