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European Session – Euro hits $1.09 before retreating on ECB minutes, loonie hits new 12-year low

The euro rallied above $1.09 versus the dollar but trimmed gains after the ECB minutes were released late in the European session and the pair dipped in to the $1.08 handle.

The December 3 ECB Meeting Account showed that some of the Bank’s policy makers wanted more aggressive easing, with a bigger cut to the deposit facility rate rather than the actual 10 basis point cut. Some also wanted bigger asset purchases than what was announced. What led to euro selling was that the account indicated that the ECB left the door open for further rate cuts, with some market participants expecting action even as soon as the March meeting.

Sterling started the European session by weakening across the board due to risk aversion and expectations that the Bank of England minutes were going be dovish. However, the minutes were not as dovish and the pound pushed higher to reach $1.4444 after having touched as low as $1.4359 earlier in the session.

The BoE announced its decision to hold its benchmark rate at 0.5%, as expected. However the publication of the MPC vote count surprised as there was an expectation for a unanimous vote against a rate hike. Out of the nine MPC members, there was one dissenter – Ian McCafferty – who once again voted for a 0.25% rise. He has been voting since August 2015 for rate hike.

The prevailing risk-off sentiment for most of the European session meant that the commodity-linked currencies were under pressure, with the Australian, New Zealand and Canadian dollars all falling against the US dollar. There was some stabilization in these currencies as the US session came around.

The aussie fell to a 4-month low versus the greenback at $0.6909, while the kiwi fell to a 3-month low at $0.6417. The Canadian dollar weakened to a new 12-year low, with the USDCAD pair rising to a 2003 high of $1.4396. Gold came under pressure to fall to $1,082.87. Oil was sidelined in the $30 handle.

Important US data today consisted of initial jobless claims. The number of Americans filing for unemployment benefits in the week ending January 9 increased by 7,000 to 284,000 from the previous week’s 277,000 claims. Today’s figure came slightly above market expectations of 275,000. The dollar weakened against the yen to fall to 117.42 yen.

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