Dollar cements gains after rally; ECB minutes eyed

LONDON - 5 October 2017: The dollar edged higher against a basket of currencies on Thursday as investors consolidated positions after a recent rise, with minutes from the European Central Bank’s latest meeting likely to be the key event of the day.

Despite a raft of dollar positive news in recent days ranging from positive economic data to potential U.S. tax reforms, the greenback has gained less than 3 percent over the last month against a broad basket of currencies .DXY.

Gavekal strategists said any major U.S. tax reform or significant changes in Chinese policy at the upcoming party Congress in Beijing after it cut reserve requirements over the weekend, could be the catalyst for more dollar gains.

The dollar index against a group of six major currencies .DXY edged 0.1 percent higher to 93.50.

This week’s data showed U.S. service sector growth hit its fastest in 12 years in September and private employers added more jobs than forecast despite hurricanes Harvey and Irma.

Higher U.S. Treasury yields also pushed the dollar higher. Ten year yields US10YT=RR have climbed nearly 30 basis points over the last month to 2.34 percent. Morgan Stanley strategists said yields “were trading at crucial levels with a break of 2.39 percent leading yields higher”.

The euro edged higher to $1.1773 EUR=, in sight of a six-week low of $1.1695 hit earlier this week.

The immediate focus was on minutes of the European Central Bank’s September policy meeting due at 1130 GMT.

The ECB signaled at the meeting that while it could announce a plan this month for a gradual exit from its very easy monetary policy, it was in no hurry to end it.

The euro zone’s central bank also mentioned the potentially negative aspects of a strong euro at the September policy meeting, so markets will look closely at the minutes to gauge what was discussed about the currency.

Viraj Patel, an FX strategist at ING Bank in London, said any language on discussions leaning towards acceptance of a stronger euro under certain macro conditions could be a huge boost for the currency.