The U.S. dollar rose against a basket of major currencies by more than a penny as the euro cratered, and U.S. stocks ticked up in afternoon trading on Thursday, as the European Central Bank signaled interest rate hikes were a long way off.
The bank’s unexpectedly dovish decision overshadowed its statement that it aimed to wrap up its crisis-era stimulus program at the end of this year.
The ECB now plans to reduce monthly asset purchases between October and December to 15 billion euros until the end of 2018 and then conclude the program.
Investors, though, seized on comments indicating that interest rates would stay at record lows at least through the summer of 2019, and some analysts believed it may be longer.
“With Draghi’s term of office due to expire at the end of October 2019, we feel the ECB is unlikely to start increasing interest rates until the new ECB president is firmly in place,” said David Zahn, head of European fixed income for Franklin Templeton.
The euro touched on its steepest one-day drop against the U.S. dollar since June 2016, and was down 1.64 per cent at 1.160.
The dollar index, which measures the greenback against six other top currencies, rose 1.1 per cent.
Ten-year government bond yields in Germany, the euro zone benchmark, fell around six basis points to 0.422 per cent compared to Wednesday’s close.
Benefiting from the ECB’s decision were stock markets on both sides of the Atlantic.
The pan-European FTSEurofirst 300 index rose 1.25 per cent, reversing earlier losses, buoyed by big gains in interest rate-sensitive sectors like autos and utilities.
“The hawks had been guiding for a June hike before the meeting and, given the clear guidance the ECB gave today on interest rates, it had to be priced out,” said AFS Group analyst Arne Petimezas. “It doesn’t seem like we’re at the stage where the hawks are on top of things.”
The effects were more measured in the U.S., where Wall Street indexes creeped up, stabilized too by a U.S. Commerce Department report showing retail sales rose 0.8 per cent last month, the biggest advance since November 2017.
The Dow Jones Industrial Average fell 23.86 points, or 0.09 per cent, to 25,177.34, the S&P 500 gained 6.97 points, or 0.25 per cent, to 2,782.6 and the Nasdaq Composite added 65.34 points, or 0.85 per cent, to 7,761.04.
Technology stocks were the biggest advancers, with Facebook and Alphabet leading the pack.
Consumer stocks led Canada’s main stock index higher on Thursday
The S&P/TSX composite index rose 0.39 per cent, or 63.14 points, to 16,328.96.
Consumer discretionary stocks rose 1.2 per cent as both The Stars Group Inc. and Cineplex Inc. jumped over 3 per cent.
Consumer staples finished up 1 per cent. Alimentation Couche-Tard rose 1.8 per cent, while Empire Company Ltd. increased 1.7 per cent.
Leading performers in the index were CES Energy Solutions Corp., up 8.5 per cent, Yamana Gold Inc., up 5.6 per cent, and Fortuna Silver Mines Inc., higher by 3.8 per cent.
Lagging shares were Prometic Life Sciences Inc., down 6.1 per cent, TransAlta Renewables Inc., down 5.8 per cent, and Ivanhoe Mines Ltd., lower by 5.2 per cent.
In U.S. Treasuries, benchmark 10-year notes last rose 9/32 in price to yield 2.9461 per cent, from 2.979 percent late on Wednesday.
The 30-year bond last rose 21/32 in price to yield 3.0688 per cent, from 3.102 per cent Wednesday.
Oil prices were mixed on Thursday, with Brent slipping and U.S. crude gaining, as a stronger dollar weighed and a key supply-setting meeting of the Organization of the Petroleum Exporting Countries loomed.
Brent crude oil lost 80 cents to settle at $75.94 a barrel, while West Texas Intermediate crude gained 25 cents to settle at $66.89.
“The independent show of WTI strength is merely a catchup process to the higher priced products and Brent values,” Jim Ritterbusch, president of Ritterbusch and Associates said in a note.
Brent and WTI hit 3-1/2-year highs in May but have since drifted lower, indicating investors expect the market to soon become better supplied as U.S. crude production rises and as OPEC and its allies look poised to increase output.
The dollar gained against a basket of currencies, approaching the six-month high it hit in late May as the euro fell broadly as the European Central Bank planned to keep interest rates at record lows into the summer of 2019.
“(ECB President Mario) Draghi came out a little bit more dovish than people thought he was going to be. And that really caused the euro to take a dip and the (U.S.) dollar to go up, which is putting downward pressure on prices,” said Phil Flynn, analyst at Price Futures Group in Chicago.