Dovish ECB Decision Drives U.S. Dollar Index to Three-Month High

The Forex market took center stage on Thursday with the Euro and the U.S. Dollar Index the stars of the show. The EUR/USD plunged to a three-month low after the European Central Bank issued what investors considered a dovish form of tapering.

December U.S. Dollar Index futures settled at 94.51, up 0.932 or 1.00% and the EUR/USD finished the session at 1.1652, down 0.0160 or -1.35%.

The news was dovish because the decision was both an extension and a reduction. Furthermore, it pushed any potential rate hikes into 2019.

The ECB extended its bond purchases and reduced the chances that it would hike rates in 2018. The details of its decision revealed that it would prolong its bond buying program by nine months to September 2018, and leave the door open to keep buying after that. It also said it would begin paring its monthly purchases by half to 30 billion Euros ($34.90 billion) starting in January.

ECB chief Mario Draghi said “an ample degree of monetary stimulus remains necessary”, as inflation has yet to show signs of a sustained upward trend.

U.S. Economic News

U.S. Weekly Jobless Claims came in at 233K, slightly lower than the 235K estimate, but higher than the previous 223K.

The Goods Trade Balance was -64.1B. Traders were looking for -63.8 B. Last month’s report came in at -63.3B.

Preliminary Wholesale Inventories rose 0.3%, better than the 0.4% estimate.

Pending Home Sales were flat at 0.0%. Traders were looking for a 0.2% increase. The previous month was revised down by 2.8%.

In other news, the U.S. House of Representatives voted on Thursday to clear a procedural path forward for a Republican tax bill.

Gold

Gold prices fell to their lowest level since October 6 on Thursday as the U.S. Dollar posted a strong gain against the Euro after the ECB announced a dovish monetary policy decision. Also pressuring gold was fresh speculation that the next U.S. Federal Reserve Chair could be a policy hawk following reports that current Chair Janet Yellen is out of the running.

Earlier in the week, U.S. President Donald Trump polled Republicans on whether they would prefer Stanford University economist John Taylor or Fed Governor Jerome Powell for the job. More senators preferred Taylor. With Yellen out of the race, the odds have increased that Trump will appoint a hawkish successor to Yellen.

Crude Oil

U.S. West Texas Intermediate and international-benchmark crude oil finished lower on Thursday with the latter posting the biggest gain.

Prices inched lower early in the session due to an unexpected increase in U.S. crude inventories, high U.S. production and exports. Prices recovered from the early session weakness to post a strong gain, boosted by comments from Saudi Arabia’s Crown Prince backing the extension of OPEC-led production cuts.