Currencies

Euro set for biggest weekly loss in 2017 as ECB strikes dovish stance

Key Points
  • Dollar index on track for best week in 11 months
  • Third quarter GDP rises 3 percent, exceeds analyst forecasts
  • Catalan parliament vote to secede boosts yen, Swiss franc
Sean Gallup | Getty Images

The euro fell on Friday and was on track for its biggest weekly loss of the year as the European Central Bank's decision on Thursday to prolong its bond purchases signaled its willingness to stick with an ultra-loose policy stance.

The tension between Madrid and Catalonia's secessionists also stoked selling in the single currency after the Catalan parliament on Friday declared independence from Madrid following a secret ballot.

Spanish Prime Minister Mariano Rajoy dissolved the parliament of Catalonia after the vote.

"The dovish surprise from the ECB was its openness to extend the duration of its bond purchase program," said Omer Esiner, chief market strategist at Commonwealth Foreign Exchange in Washington.

On Thursday, the ECB said it will extend its bond purchases into September 2018 while it will reduce its monthly purchases.

The move raised expectations the ECB would unlikely raise interest rates until 2019 as the U.S. Federal Reserve has remained on its path to hike U.S. rates further.

The euro was down 0.44 percent at $1.1599, bringing its weekly loss against the dollar near 1.7 percent, which would be the biggest in 11 months. Against the , the common currency was 0.72 percent lower at 131.82 yen after touching its weakest level in nearly two weeks.

The Catalan parliament vote revived some safe-haven demand for the yen and Swiss franc. As the euro wobbled this week, the dollar strengthened on upbeat economic data, hopes for a tax-cut plan and speculation about President Donald Trump's selection of someone who favors a faster pace of rate increases than current Fed Chair Janet Yellen, whose term expires in February.

The U.S. government reported on Friday that the economy grew at a 3.0 percent annual rate in the third quarter, faster than the 2.5 percent forecast among economists polled by Reuters.

ECB 'well placed' to meet inflation objective, Draghi says
VIDEO0:5000:50
ECB 'well placed' to meet inflation objective, Draghi says

Earlier Friday, Bloomberg reported that Trump leans toward nominating Fed Governor Jerome Powell as the next Fed chief, but has not made up his mind.

The dollar pared gains briefly on that report as Powell is seen less hawkish than Stanford University economist John Taylor, another potential nominee to lead the central bank.

Trump is also considering Yellen, former Fed Governor Kevin Warsh and his economic adviser, Gary Cohn, for the Fed's top job.

Trump is expected to announce his candidate before a trip to Asia in early November.

The index that tracks the dollar against euro, yen and four other currencies was up 0.27 percent at 94.87 after hitting a three-month high at 95.150.

The dollar index is poised for the biggest weekly rise so far this year.