The highlights of the European session were the UK retail sales data and the European Central Bank policy decision and press conference. In the North American session, US data included jobless claims, existing home sales and the index of leading indicators.
Sterling rallied on UK retail sales numbers which rose the most in two years in September by 1.9% month-on-month. This was mainly due to a surge in food and drink sales during the Rugby World Cup event in Britain. Year-on-year sales also increased, by 6.5%, the highest rate since November 2014. Both figures beat forecasts and gave the pound a boost against the dollar to 1.5506. It later fell back as the dollar strengthened on data that showed US jobless claims rose less than expected last week.
The number of Americans applying for jobless benefits rose by 3,000 to 259,000 in the week ending October 17, less than the expected 265,000 claims but more than the prior week’s upwardly revised 256,000 claims.
Meanwhile, dovish comments by European Central Bank President Mario Draghi also caused the dollar to rise and the euro to tumble.
The euro showed little reaction after the ECB announced its decision to keep its benchmark interest at a record low 0.05%. This was in line with market expectations. However what led to a selloff in the single currency were remarks by Mario Draghi at a press conference during which he raised the possibility of further monetary stimulus at the next meeting.
Draghi said the ECB will “reexamine its monetary policy in December” and hinted that the QE program that ends in September 2016 could be extended if necessary. He also mentioned that downside risks have emerged for growth and inflation within the Eurozone.
As soon as the ECB chief began talking, the euro started to fall and reached a three-week low of 1.1154 against the dollar and touched a one-month low of 0.7241 against the pound. The dollar surged against the yen to reclaim the key 120 handle and touched a high of 120.45.
The dollar’s rise was capped after the Conference Board index of leading indicators for the US declined 0.2% in September to 123.3. It was expected to remain flat. The August number was revised down to 0% from 0.1%. Meanwhile, US existing home sales rose 4.7% to an annualized rate of 5.5 million in September, beating forecasts of a 5.39 million increase.
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