Dollar hits seven-month high on ECB's Draghi, pressures oil, stocks

October 19, 2016 8:44 PM EDT

A man stands next to an electronic board showing stock prices in Tokyo, Japan, August 18, 2016. REUTERS/Kim Kyung-Hoon


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By Dion Rabouin

NEW YORK (Reuters) - The euro fell to a four-month low against the U.S. dollar on Thursday and the greenback rose to its highest in seven months against a basket of major currencies after the European Central Bank President left the door open to more monetary stimulus.

The rise in the U.S. dollar knocked down oil prices which are traded in dollars and pressured U.S. stock prices.

The ECB left its ultra-loose monetary policy unchanged but President Mario Draghi kept a wide range of options open for further stimulus in December, shooting down any talk of tapering its 1.7 trillion euro asset-buying program.

The U.S. dollar gained further after publication of a stronger-than-expected U.S. existing home sales report.

"The move in the dollar hurt oil, which hurt energy, which hurt stocks," said Stephen Guilfoyle, chief market economist at Stuart Frankel & Co.

Crude oil prices fell just under 2.5 percent, also weighed by profit taking. A strong rally on Wednesday had taken prices to their highest in 15 months in the wake of unexpected inventory drawdowns.

U.S. stocks were also pushed lower by weak earnings reports from index heavyweights such as telephone service provider Verizon Communications Inc and insurer Travelers Companies, Inc . Telecom stocks were the worst-performing sector, down 2 percent, their worst one-day percentage drop since Sept. 9.

The Dow Jones industrial average fell 40.27 points, or 0.22 percent, to 18,162.35. The S&P 500 lost 2.95 points, or 0.14 percent, to 2,141.34 and the Nasdaq Composite dropped 4.58 points, or 0.09 percent, to 5,241.83.

A measure of world equity markets <.MIWD00000PUS> fell 0.14 percent after touching a fresh one-week high following Draghi's comments.

European equities jumped following Draghi's remarks, with the pan-European STOXX 600 index rising more than 1.0 percent from its lows before closing up 0.19 percent.

DRAGHI DRAGS DOWN EURO

The euro fell as low as $1.0916 versus the U.S. dollar, its lowest since June 24, helping the dollar index rise to its highest since March 10.

"Draghi pushed back strongly against the idea that they could discuss tapering or adjusting QE and that weighed on the euro," said Vassili Serebriakov, FX strategist at Credit Agricole in New York.

The ECB head's comments weighed on longer-dated U.S. Treasury prices, which dipped modestly. Benchmark 10-year notes were last down 1/32 in price to yield 1.749 percent.

The greenback was also supported by relatively hawkish comments by New York Fed President William Dudley late on Wednesday.

Dudley, a permanent voter on policy and a close ally of Fed Chair Janet Yellen, said the U.S. central bank would likely raise interest rates later this year if the U.S. economy remained on track.

The Mexican peso fell on Thursday after touching a six-week high in the immediate aftermath of the U.S. presidential debate between Republican Donald Trump and Democrat Hillary Clinton on Wednesday.

The peso is seen as the chief proxy for market pricing of the Republican candidate's chances in view of his promises to impose tough limits on immigration and rewrite trade deals.

"The early polls suggest Clinton was once again the winner here and so the Mexican peso has been one of the most obvious beneficiaries," said James Athey, fixed income investment manager at Aberdeen Asset Management.

"The magnitude of the move, however, suggests that the market has largely concluded that Trump won't win. That doesn't mean that the result is a foregone conclusion. Markets, pollsters and pundits all predicted the wrong result in the UK's referendum on EU membership. That should act as a cursory lesson now."

(Reporting by Dion Rabouin; Additional reporting by Karen Brettell in New York and Patrick Graham in London; Editing by Nick Zieminski and Richard Chang)



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