Dollar Stabilizes on Hump Day, Awaits Thursday’s BOJ and ECB Meetings

After being shellacked to start the week, the US dollar is being given a small reprieve today as investors await tomorrow’s BOJ and ECB meetings. The US may also report a bounce back in housing starts (residential investment) after a three-month slide.

The euro reached a 14-month high yesterday just shy of $1.1585 as it approaches the 2016 high near $1.1615 and has pulled back today, though remains well within yesterday’s range.  There is a 525 mln euro option struck at $1.16 that expires today.   Caution ahead of tomorrow’s ECB meeting, in a light news day, seems to be behind the consolidative tone.

A Reuters report quoted an unnamed official suggesting that the ECB wants to keep the asset purchase commitment open-ended.  Many, including ourselves, saw the dropping of the commitment to buy more bonds if necessary as part of the housekeeping that would continue to prepare the market for a September announcement indicating an extension of the balance sheet expansion operation, but at a slower pace.  If the report weighed on the euro, there was not much of a reaction in the European bond market, where 10-year yields are narrowly mixed (~+/- 0.5 bp).   Two-year yields are little changed but mostly slightly firmer.