Euro falls versus dollar

The euro dropped against the dollar on Thursday and was poised to post its largest daily loss in three weeks after European Central Bank President Mario Draghi said interest rates in the euro zone will remain low for an extended period. The dollar, in contrast, rallied sharply across the board, buoyed by US data on jobless claims and manufacturing that showed the world's largest economy was recovering steadily.
The upbeat data came out a day before the US Labour Department reports July nonfarm payrolls figures, a key driver of financial markets and a factor in Federal Reserve policy. Draghi told a press briefing after the ECB left rates unchanged that risks to growth in the region are tilted to the downside, warranting loose monetary policy.
"The positive US claims data contrasts to the cautious tone carried by Draghi and is forcing a widening in the yield gap between comparable benchmark bonds," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co LLC in New York. "The euro zone is several years behind the US in terms of recovery and the dynamics of the upturn are built on a different foundation." The yield differential between US 10-year bonds and German benchmark bunds has expanded in favour of the dollar to its widest in two weeks, lending support to the greenback.
The euro fell as low as $1.3196 after Draghi's statement, the lowest in about a week, and was last at $1.3208, down 0.7 percent, its largest daily percentage drop since July 9. Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York, however, said he does not expect further easing from the ECB, since the euro zone's economic performance so far was in line with the ECB's forecast. "The bar is high to additional easing," Chandler said.
The dollar was firmly in demand, soaring 1.7 percent to last trade at 99.54 yen, on pace for its best daily performance in two months. The dollar's gains against the euro and the yen pushed the dollar index up 1.2 percent to 82.398. Reports showing US jobless claims fell to their lowest in five and a half years and a US manufacturing index rose to its highest in two years boosted the dollar.
The Institute for Supply Management index of national factory activity topped expectations for July. The ISM sub-index of new orders climbed to its strongest in more than two years while employment expanded, boding well for the closely watched US payrolls report. "Overall, this is a tentative signal that the labour market remains pretty healthy," said Avery Shenfeld, chief economist at CIBC World Markets in Toronto. The array of upbeat US data came one day after the Fed said that the world's biggest economy was recovering but still needed support, which dashed some expectations that the US central bank would start winding down its own stimulus program as soon as September. Markets are expecting to see 185,000 US jobs were created in July and an unemployment rate of 7.5 percent, according to a Reuters poll.