Euro rallies to nearly two-year high after Draghi comments; dollar tumbles


European Central Bank President Mario Draghi will talk about monetary policy Thursday.

The U.S. dollar fell on Thursday, erasing an earlier gain as the euro jumped on comments from European Central Bank President Mario Draghi, who left interest rates unchanged and pledged to continue the ECB’s asset-purchasing plan through December, “or beyond, if necessary.”

Read MarketWatch’s recap of Mario Draghi’s news conference

The ICE U.S. Dollar Index

DXY, -0.59%

which compares the greenback against a half-dozen other currencies, was down 0.7% to 94.17, having previous risen as much as 0.4%. The move extends the buck’s recent weakness, as the currency is down 7.9% thus far this year.

At current levels, the dollar index is trading at its lowest level since August 2016.

The WSJ Dollar

BUXX, -0.31%

which looks at the currency against a wider basket of rivals, fell 0.4% to 86.67.

The day’s biggest mover was the euro

EURUSD, +0.9292%

which surged 1% in its biggest one-day move since June 27. It most recently traded at $1.1634, compared with its late Wednesday print of $1.1515. The common currency, which traded as low as $1.1479 before the ECB statement and commentary, was trading at its highest level since August 2015, and broke above the $1.16 level for the first time since May 2015.

“The market is already working off the assumption that the ECB will gradually phase out bond buying, with the program likely ending by the end of next year, possibly even the third quarter. This was made clear when the euro rallied despite the repeated insistence from Draghi that tapering wasn’t discussed and further analysis will be done in the Autumn,” Craig Erlam, senior market analyst at Oanda wrote in a note to clients.

The euro has been one of the strongest-performing currencies this year, up 10.5% in 2017, including a gain of 1.4% thus far this week.

Read: Why Mario Draghi can’t back down from ECB taper hints

Despite the strength in the euro, the British pound

GBPUSD, -0.4146%

 remained lower against the dollar, slipping below the key $1.30 level, trading at $1.2973 from $1.3022. However, it bounced off session lows after data showed U.K. retail sales rose 0.6% in June month-over-month, slightly beating the expectations of analysts polled by The Wall Street Journal. Earlier it fell as low as $1.2933.

The Bank of Japan lifted its economic growth forecasts, while pushing back on inflation goals. The Japanese central bank now expects inflation to reach around 2% by March 2020, which is one year later than its prior forecast.

The dollar initially firmed against the yen

USDJPY, -0.15%

in the wake of the BOJ’s meeting, but subsequently turned lower. It was changing hands at ¥111.67, from ¥111.97 late Wednesday in New York.

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