The dollar has been riding high and is looking for another boost Thursday from a dovish European Central Bank.
The greenback made new multiyear highs against the and euro Wednesday, ahead of the ECB meeting. The dollar has been rising as U.S. monetary policy diverges from that of Japan and the euro zone. The U.S. economy is also stronger, and that is expected to show up in another 200,000 plus jobs report Friday.
Traders have been anticipating a dovish ECB President Mario Draghi, who holds a briefing after the meeting.
"The gist of it is I think Draghi will leave the door wide open for sovereign QE in the first quarter," said Alan Ruskin, head of G-10 foreign exchange strategy at Deutsche Bank. "I think you've heard a number of comments from ECB officials suggesting December is too early, and they want to let some of their past decisions work their way through."
The ECB has embarked on asset purchases as the Fed ended its quantitative easing bond buying, or QE, in October. The ECB is now expected to expand its asset buying with a program to buy sovereign debt. The dollar index, at 89.005 was at the highest level since March, 2009 and the dollar was at a seven-year high against the yen.
"There's this kind of fear that the dollar's traded very, very well going into this meeting, and that maybe there's some expectation he will deliver more than he actually will," said Ruskin. He said even though Draghi is expected to be dovish, if nothing more is announced there's a chance the dollar could selloff.
"The dollar will be bought on the dips," he said. The euro was trading at 1.23 late Wednesday, the lowest level since August, 2012.
The dollar is also being helped by comments from Fed officials this week, including New York Fed President William Dudley who said the Fed could start to raise rates midyear.
"The ECB is critical this week," said George Goncalves, head of rate strategy at Nomura. "They're notoriously masters at saying they're going to do something and they don't' do it." He said it is possible the ECB could reveal some details of their QE plans.
"The markets are expecting something, and if they're let down that could weigh more on risk markets and less on Treasurys and bunds," he said.
The 10-year yield was flat at 2.28 percent Wednesday, after ADP's private sector jobs report showed slightly fewer jobs than expected—at 208,000. But ISM nonmanufacturing data was stronger than expected, at 59.3, a three-month high. The Fed's Beige Book was also positive on the economy, noting that job gains are "widespread."
Stocks rose, and the Dow up 33 points at 17,912, and the was up 7 points at 2,074 were both at new highs. U.S. oil futures rose slightly, up 50 cents to $67.38 per barrel, but buyers continued to move into energy stocks and ETFs. The energy sector was up 1.2 percent, the third best performer behind industrials, up 1.3 percent and materials, up 1.4 percent.
In the U.S., the only economic report Thursday is weekly jobless claims, and that is expected to be 295,000, off from the 313,000 last week. There are also monthly sales reports from several chain stores, and they will be watched for comments on holiday shopping.