NEW YORK (Reuters) – The euro dropped to a four-week low against the U.S. dollar on Thursday after the European Central Bank president flagged further monetary easing in December.
The dollar also climbed to a three-week high against the Swiss franc, and rallied from a five-week trough versus the yen.
Data showing record pace in U.S. economic growth for the third quarter, as well as an improving trend in jobless claims initially hurt the dollar as a safe haven, as the reports boosted risk appetite and lifted stocks.
But positive data should help the dollar in the long run, analysts said.
The market’s focus though was on the ECB, as Europe grapples with the surge in COVID-19 cases that forced national lockdowns in Germany and France and a regional lockdown in Spain.
The ECB, which kept interest rates steady, committed on Thursday to contain the growing fallout from a second wave of coronavirus infections, saying it would hone its response by its December meeting.
“We agreed, all of us, that it was necessary to take action and therefore to recalibrate our instruments at our next Governing Council meeting,” ECB President Christine Lagarde told a news conference.
In afternoon trading, the euro fell 0.6% to $1.1671 <EUR=EBS>, after earlier falling to a four-week low of $1.1650.
The euro also slid 0.3% versus the yen to 122.14 yen <EURJPY=EBS>.
“If you look at the price action in rate markets, we saw a further adjustment lower in some of the forward rate expectations. So the market is looking at the ECB comments as indicating further rate cuts,” said Erik Nelson, currency strategist, at Wells Fargo in New York.
“You’re also looking at an overall challenging backdrop in Europe, which means further shutdowns and more restrictions, more so than in the United States. So it’s kind of a perfect storm that’s weighing on the euro at this point,” he added.
Rapidly rising COVID-19 infection rates in Europe, along with caution ahead of the U.S. elections, triggered the worst market selloff since June earlier this week.
The dollar index, with the euro as the largest component, rose to a four-week high and was last up 0.5% at 93.942 <=USD>.
Gross domestic product rebounded at a 33.1% annualized rate last quarter, according to an advance estimate on Thursday, the fastest pace since the government started keeping records in 1947.
A separate report showed 751,000 people filed for state unemployment benefits in the week ended Oct. 24, compared with 791,000 the previous period.
“Although the data … appears healthy, it should be taken with a grain of salt,” said Matthew Eidinger, market strategist, at Cambridge Global Payments. He cited the rise in U.S. COVID-19 cases that could mean more restrictions, which could derail the economy’s recovery.
Against the yen, the dollar rose 0.4% to 104.67 yen <JPY=EBS>, rallying from a five-week low hit earlier in the session.
The dollar also rose 0.6% versus the Swiss franc to 0.9160 franc <CHF=EBS>, after earlier touching a three-week peak of 0.9172.
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Lisa Shumaker and Tom Brown)