Euro jumps to 3-year high on German coalition breakthrough

DailyFX US AM Digest US Dollar at Three Year Low versus the Euro

Money markets now see a 76 percent chance of a 10-basis point increase in the deposit rate by the end of this year, compared with 34 percent one day before the European Central Bank meeting on December 14 and 46 percent at the end of last year. Weak inflation at the producer level could add to concerns that the factors restraining inflation could become more persistent and result in the Federal Reserve being more cautious about raising interest rates this year.

The pairing opened daily trading in the region of 1.1930 and closed higher around 1.1956 in the evening.

The December meeting minutes said the central bank should revisit its policy message in early 2018 and gradually adjust its language to reflect improved growth prospects.

Investors took the relatively hawkish statement as a further signal that the European Central Bank will wind down its 2.55 trillion euro ($3.07 trillion) bond purchase scheme this year if Europe's economy continues to hum along.

The dollar grew weaker in general after data showed higher requests for unemployment benefits made to the U.S. government, accompanied by a decline in the income for producers. "Firstly, they make higher revenues in terms of their returns", John Moore, trader at Berkeley Capital, said. The ECB's stimulus effort also includes keeping its benchmark interest rate at a record low of zero.

A sharp rise in oil prices could also push inflation higher worldwide. The Canadian dollar was last trading flat at C$1.2525 to the greenback. Stock futures pointed 0.15% lower on Wall St while shares in Europe and Asia fell modestly. The Australian dollar rose to hit 3-months peak on Thursday as Australian dollar was boosted was boosted by upbeat retail sales data which painted a positive outlook for consumer spending and economic growth, while narrowing the odds on a rate hike this year.

The euro was up 0.2 percent at $1.2050, approaching its almost four-month high of $1.2089 set last week.

Germany's DAX 30 index fell 0.7% to 13,287.31, after dropping as much as 1%.

DailyFX US AM Digest US Dollar at Three Year Low versus the Euro
Euro jumps to 3-year high on German coalition breakthrough

What are markets doing: The Stoxx Europe 600 index was down 0.5% at 398.25, with only the financial sector rising, fronted by bank stocks. While the commodity-correlated Canadian Dollar was supported by three-year high oil prices, demand softened when it was announced that domestic building permits shrunk -7.7% in November, marking a significant turnaround from October's +4.4% gain.

Dow Jones closed up by 0.80 percent, S&P 500 ended up 0.70 percent, Nasdaq finished the day up by 0.79 percent.

While some have speculated that yesterday's move was only a technical change the move sent a ripple through the bond markets, pushing yields up on USA treasuries and other bond markets as traders and investors re-adjusted their positions amidst a worry that they might be underestimating the pace at which central banks might look to withdraw stimulus in the coming months.

The "Greenback" plummeted across the board following a Bloomberg report indicating that Chinese officials had recommended toning down Treasury purchases, which could have been a response to the 10-year interest rate peaking above 2.5%, or could be related to rumours that the U.S. government is planning sanctions against China.

Among other precious metals, spot silver was up 0.2pc at $16.97 an ounce from a two week low of $16.86 on Wednesday.

The minutes said that the European Central Bank revised its prediction and increased its growth estimate by 0.2 points to 2.4 percent in 2017, while it maintained inflation at 1.5 percent.

Banca Santander shares rose 1.95% to €5.81. The day before they hit its strongest since late 2014 at $64.77 a barrel. Brent's settlement still represents a three-year closing high.

In the US, the Labor Department reported that weekly jobless claims rose by 11,000 to 261,000 new claims, a three-month high.

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