By Deborah Levine and Sarah Turner, MarketWatch
NEW YORK (MarketWatch) — The dollar extended gains on Thursday, pushing the euro down to its lowest in almost five weeks, after the European Central Bank cut interest rates but disappointed investors hoping for it to increase lending or bond purchases.
Markets also got news of more stimulus measures from the People’s Bank of China and the Bank of England.
“Following this morning’s actions by the ECB and the BOE, it is difficult not to be bullish on the near-term prospects for the U.S. dollar amidst ongoing crisis in Europe,” said Michael Woolfolk, senior currency strategist at Bank of New York Mellon.
The dollar index DXY +0.86% , which measures the greenback against a basket of six currencies, rose to 82.881, from 82.132 in late North American trading on Wednesday.
The euro EURUSD -1.2619% fell to $1.2375 from $1.2534 in late trading the previous day — when trading was light due to U.S. stock- and bond-market closures for Independence Day.
The shared currency hasn’t closed below $1.24 since June 1.
The European Central Bank cut its key refi rate to a record-low 0.75% from 1% to support the ailing euro-zone economy. It also lowered its deposit rate and the rate on its marginal lending facility.
Lowering the deposit rate to zero was only partially priced in, said Richard Gilhooly, U.S. director of interest-rate strategy at TD Securities.
“The reduction in the rate to 0% should, in theory, flood the system with cash as some part of the record deposits at the ECB rush into the inter-bank lending markets and depress market rates,” he said. Read about the focus on the ECB’s deposit rate.
In his monthly press conference, ECB President Mario Draghi said policy makers had no discussion of nonstandard measures, referring to its long-term refinancing operation and sovereign-bond-buying programs that in the recent past eased stress on peripheral European sovereign debt.
He also doused hopes of anyone thinking maybe Europe would expand its bailout facility called the European Stability Mechanism; Draghi said “we have to make it do.”
Traders also weighed a pair of better-than-expected U.S. reports on employment, likely boosting the outlook for Friday’s nonfarm-payrolls report for June — considered a key indicator of growth and therefore of what policy makers may do. Read about ADP data on private payrolls.
Bank of England
The Bank of England boosted the size of its quantitative-easing program by 50 billion pounds ($78.3 billion), bringing its size to ÂŁ375 billion, as was widely expected. Read story on Bank of England and ECB monetary policy.
The British pound GBPUSD -0.52% fell to $1.5521 from $1.5606 late Wednesday.
Against the Japanese yen USDJPY +0.09% , the dollar turned up sharply after Europe’s news. Also during the European session, the Chinese central bank lowered its one-year yuan deposit rate 25 basis points and its one-year lending rate by 31 basis points. Read more on China’s rate cut.
The greenback bought 80.03 yen, up from ¥79.84 Wednesday. It hasn’t closed above 80 yen since June 22, according to FactSet Research.
The dollar was lower through the Asian session as “Bank of Japan Governor Masaaki Shirakawa ... reiterated the upbeat assessment that exports and factory output are picking up as companies increase capital expenditure, suggesting the [Bank of Japan] sees little need to deliver additional monetary stimulus at next week’s BOJ meeting,” said RBC Capital strategists.
The Australian dollar AUDUSD -0.18% reversed earlier gains to buy $1.0266, from $1.0283. Data out Thursday showed that the country’s trade deficit widened in May but by less than economists had been expecting. Read more on Australian trade deficit .
Deborah Levine is a MarketWatch reporter, based in New York.
Sarah Turner is MarketWatch's bureau chief in Sydney.
