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Dollar Down After ECB Rates Boost

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By Doris Yu

Investing.com – The dollar was down on Friday morning in Asia after the European Central Bank raised interest rates more than expected on Thursday as concerns about runaway inflation trumped worries about growth.

The US Dollar Index that tracks the greenback against a basket of other currencies inched down 0.01% to 106.91 by 11:32 PM ET (3:32 AM GMT).

The USD/JPY pair was up 0.23% to 137.68. The Bank of Japan stuck with ultra-easy policy settings on Thursday.

The AUD/USD pair was down 0.30% to 0.6909, and the NZD/USD pair fell 0.48% to 0.6221.

The USD/CNY pair inched up 0.01% to 6.7675, while GBP/USD pair slid 0.23% to 1.1966.

The dollar was weighed down overnight by a decline in Treasury yields after data showed a slump in factory activity and a rise in applications for unemployment benefits. This signals that the economy is already feeling the effects of aggressive U.S. Federal Reserve policy tightening.

The euro is headed for its best week since May on Friday after the ECB hiked interest rates by 50 basis points on Thursday, its first rate hike since 2011.

The ECB was short on specifics of a so-called crisis tool aimed at taming peripheral nation bond yields, as Italian bond prices declined after Italy’s prime minister Mario Draghi resigned.

“The details, conditionality and what would justify activation was vague and did little to inspire confidence in light of the Italian political situation," Tapas Strickland, a markets economist at National Australia Bank, wrote in a note.

He added that the widening spread between Italian and German government bond yields reflected greater political risk and the euro had similarly retreated from its post-ECB meeting peak at $1.0279.

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