The euro wavered on Thursday, well off its overnight peak as investors adjusted position ahead of a policy meeting by the European Central Bank later this session.
The ECB is widely expected to hold interest rates unchanged at record lows, but President Mario Draghi is likely to drive home the case for ultra-loose monetary policy.
“The task now for the ECB lies more along the lines of promoting the effectiveness of these new expansionary policies and assertion that the Bank can do more if needed,” said Rodrigo Catril, FX strategist at National Australia Bank.
Last month, while the ECB delivered aggressive easing measures, the euro perversely rallied after Draghi said there was probably no need for more rate cuts if the latest stimulus worked.
With three major central bank meetings looming, market participants cited a lack of market conviction on direction bets. The Federal Reserve is scheduled to hold its policy review on April 26-27, while the Bank of Japan will meet on April 28.
On Wednesday, BOJ Governor Haruhiko Kuroda said the central bank’s presence in the exchange-traded fund (ETF) market is “not too big,” signaling that topping up purchases of ETFs could be a real, near-term option.
But the BOJ could hold off on additional steps for now. Despite the yen’s recent appreciation, a Reuters poll published on Thursday showed most Japan companies still expect to maintain or see a small increase in operating profits this financial year.
While no action is expected from the Fed, traders will be looking for clues in its policy statement that the central bank is preparing markets for a June interest rate hike.
Fed Chair Janet Yellen has repeatedly said the Fed will be cautious in tightening policy, prompting markets to barely price in a rate hike this year.
U.S. Treasury yields have fallen as a result, though they hit three-week highs on Wednesday as oil and stocks gained, which helped the dollar. [U/S]
“This week has been all about the risk rally,” said Bart Wakabayashi, head of FX sales at State Street Global Markets in Hong Kong.
“It’s clear there is just a reversal of positions going on. Maybe oil could be driving this,” he said.
With the euro on the back foot, the dollar index reversed all of Tuesday’s fall and was up around 0.1% at 94.575 (DXY), off Tuesday’s low of 93.926.
Crude prices were off lows hit earlier this week but remained pressured by concerns over a global glut after Russia and Iran said they were ready to raise oil production further, while U.S. inventories climbed slightly. [O/R]
That stemmed the recent rally in commodity currencies. The Aussie added 0.2% to, but was below the previous session’s 10-month peak.