The euro fell hard Thursday against the dollar after the European Central Bank sketched out a longer-than-expected timeframe for hiking interest rates.
The ECB’s timeframe, included as part of its announcement that it would end stimulus bond-buying this year, stood out all the more a day after the US Federal Reserve accelerated its schedule for hiking interest rates.
The single currency’s decline helped propel European bourses decisively higher.
The ECB said it will begin tapering bond purchases in September and cease purchases entirely after December 2018.
But that announcement was offset by a plan to hold interest rates at current record lows through at least the summer of 2019, a timeframe that surprised observers. The central bank also slashed its growth forecast for the rest of the year, citing threats of rising protectionism and global trade fears.
“Previously, the market had expected there to be a rate hike in the first half of 2019, which is now no longer the case,” wrote Fawad Razaqzada, technical analyst at Forex.com.
Near 2100 GMT, the euro was at $1.3270, down about 0.8 percent from the day-earlier level.
Joe Manimbo, senior market analyst at Western Union Business Solutions, noted that the drop in the euro came after the Federal Reserve on Wednesday upped its expectations for interest rate hikes in 2018 and 2019, which “underscored how European policy diverges and differs dramatically from the Fed.”
But as the euro fell, bourses in Paris and Frankfurt notched handsome gains of 1.4 percent and 1.7 percent respectively, in anticipation that a cheaper currency would boost exports.
On Wall Street, the Nasdaq surged 0.9 percent to a fresh record of 7,761.04 but the Dow finished modestly lower.
Trade weighs on Dow
The relative weakness of the Dow reflected the heavy representation in the index of exporters that are vulnerable in a trade war. Boeing, Caterpillar and General Electric all fell Thursday.
But worries about a trade war have generally receded somewhat on Wall Street compared with earlier in the spring, said Kate Warne, an investment strategist at Edward Jones.
Trade “has been looked at as something that the market will react to when it happens, as opposed to worrying about it,” she said. “Investors are taking much more of a wait-and-see approach.”
However, the International Monetary Fund warned that President Donald Trump’s punitive import duties could harm the world economic recovery by “catalyzing a cycle of retaliatory responses” and interrupting global supply chains.
The White House is expected as soon as Friday to unveil a major tariff announcement on China, which has vowed to retaliate.
Key figures around 2100 GMT
New York – Dow Jones: DOWN 0.1 percent at 25,175.31 (close)
New York – S&P 500: UP 0.3 percent at 2,782.49 (close)
New York – Nasdaq: UP 0.9 percent at 7,761.04 (close)
London – FTSE 100: UP 0.8 percent at 7,765.79 (close)
Paris – CAC 40: UP 1.4 percent at 5,528.46 (close)
Frankfurt – DAX 30: UP 1.7 percent at 13,107.10 (close)
EURO STOXX 50: UP 1.5 percent at 3,532.57 (close)
Tokyo – Nikkei 225: DOWN 1.0 percent at 22,738.61 (close)
Hong Kong – Hang Seng: DOWN 0.9 percent at 30,440.17 (close)
Shanghai – Composite: DOWN 0.2 percent at 3,044.16 (close)
Euro/dollar: DOWN at $1.1580 from $1.1791 at 2100 GMT Wednesday
Pound/dollar: DOWN at $1.3270 from $1.3376
Dollar/yen: UP at 110.64 yen from 110.34 yen
Oil – Brent Crude: DOWN 80 cents at $75.94 per barrel
Oil – West Texas Intermediate: UP 25 cents at $66.89 per barrel