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The U.S. dollar was hit on Friday as markets digested the speeches of Federal Reserve Chairwoman Janet Yellen and European Central Bank President Mario Daghi at Jackson Hole, Wyo., which saw the euro surge to its highest level since January 2015.
Investors had been looking for clues on the Fed’s policy plans, including the exact timing of its balance sheet unwinding, which is widely expected to kick off in September, but also expected central bankers to be rather tight lipped on any new policy decisions, making the stark market reaction more surprising, market participants said.
While neither Yellen nor Draghi discussed specific policy strategy in their speeches,Draghi suggested it would remain loose in the eurozone even as quantitative easing eventually becomes a thing of the past in post-speech comments. He also continued to talk optimistically about the European economic recovery.
The ICE U.S. Dollar Index DXY, -0.72% a gauge of the greenback against six rivals, traded at 92.5590, back up from an intraday low of 92.465, which was its lowest level in the year-to-date. On the week, the index lost, 0.9%.
The WSJ Dollar Index BUXX, -0.59% a broader measure of the buck’s movement, shed 0.6% to 85.63, also the lowest level of the year.
“I think the market was just looking for anything regarding monetary policy, and then Yellen didn’t even touch the subject,” Brad Bechtel, managing director of FX at Jefferies, said, adding that the euro was strengthening significantly against the greenback and likely responsible for much of Friday’s drop in the dollar indexes.
The euro EURUSD, +1.0509% rose to its highest level since January 2015 on Friday following Draghi, before retreating slightly. The eurozone currency traded at $1.1920, 1.3% up on the week.
Volumes are low on summer Fridays, making it hard for currencies to stick to their highs as the afternoon goes on, Bechtel said, explaining why the euro came off of its highs again.
Meanwhile, the British pound GBPUSD, +0.6250% rose 0.6% to $1.2871 versus $1.2801 late on Thursday. Sterling gained 0.4% since last week Friday.
“The selloff [in the dollar] seems counterintuitive to us and we look for the dollar to gain ground going into Draghi’s […] speech,” Stephen Simonis Sr., chief currency consultant for brokerage FXDD Global said in emailed comments to MarketWatch. “The market is curious that way […].”
The Fed has already signaled it plans to announce in September the start of tapering its massive $4.5 trillion balance sheet and hold off on discussing a rate increase until December.
Earlier on Friday, durable-goods orders for July fell, falling 6.8%, the most in nearly three years. Economists surveyed by MarketWatch had produced a consensus forecast for a fall of 6.9% after a 6.4% gain in June.
Against the Japanese yen USDJPY, -0.18% the dollar slipped to ¥109.29, compared with ¥109.56 late Thursday in New York, registering a modest 0.1% gain on the week.