Euro advance persists as politics sink dollar

London - Bonds gained and the euro headed for its strongest level against the dollar since January 2015 on bets the European Central Bank (ECB) will start tapering its stimulus program. European stocks fell as the common currency’s rally weighed on carmakers and other exporters.

The Bloomberg Dollar Spot Index headed for an 11-month low as investors assess an investigation into US President Donald Trump that may stall his economic agenda, while the euro gained impetus after ECB President Mario Draghi said on Thursday that the central bank will discuss in the autumn plans to unwind quantitative easing.

Copper led an advance in industrial metals, while oil traded lower as OPEC supply increased this month.

Increased hawkishness from the ECB has helped the euro rally from lows last seen near the start of the millennium, with investors expecting tapering to start in the new year and pricing in a 10 basis point rate hike by September 2018.

In the US politics are again at the forefront, with reports that US special counsel Robert Mueller is expanding his investigation of Trump less than a day after the president told the New York Times that any digging into his finances would cross a red line.

“Draghi tried to talk the euro down, even going so far as to suggest that ECB’s quantitative easing could be increased and prolonged,” said  Yann Quelenn, a market strategist at Swissquote Bank. “But the currency markets were not buying Draghi’s line, and neither are we. Available bonds are too scarce, and turn to a taper is too clear to disguise.”

Here are the main moves in markets:

Currencies

The Bloomberg Dollar Index was down 0.1%, in line for a weekly loss of 0.8%, at 13:02, as the greenback weakened against most of its G-10 peers. 

The yen was up 0.4% at ¥111.50/$. The euro climbed 0.1% to $1.1644 after reaching a 23-month high earlier in the session. The common currency has gained 1.5% this week, its second straight five-day advance.

Bonds

The yield on US 10-year Treasuries fell two basis points to 2.24%. Benchmark yields in Germany dropped three basis points to 0.5%, down nine points this week. Yields in France also dipped three basis points.

Stocks

The Stoxx Europe 600 dropped 0.4%, with with automobile stocks losing 1.7% and construction and bank shares also declining. The gauge is heading for its first weekly decline in three. Futures on the S&P 500 Index were little changed after the underlying gauge closed flat Thursday.

Commodities

West Texas Intermediate Crude dropped 0.6% to 46.64 a barrel. Copper advanced 1.3% to $6 036 a ton, a four month high, leading a rally in industrial metals.

Gold was poised for its first back-to-back weekly advance since June 2. Bullion for immediate delivery added 0.3% to $1 248.35 an ounce.

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