Article Highlights

  • Markets happy to hold euros before ECB meets next week
  • Dollar dips after news Jerome Powell favored as Fed chief
  • New Zealand dollar sinks after surprise vote outcome
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The euro climbed to the highest in nearly a week on Thursday as U.S. Treasury yields fell, pulling back from a two-year high, with the dollar weakening further late in the day on a report that President Donald Trump was leaning toward Jerome Powell as the next chair of the Federal Reserve.

Powell, a Federal Reserve governor, is favored by Treasury Secretary Steve Mnuchin, a story from Politico said. He is considered less hawkish than other choices on Trump’s short list like former Fed Governor Kevin Warsh and economist John Taylor.

Powell would be expected to favor lower interest rates for the United States, reducing the value of the dollar to investors.

The euro rose to $1.1858, its highest since last Friday.

The euro was higher before the news broke, having rebounded from losses earlier in the week ahead of a policy meeting of the European Central Bank.

Investors shrugged off political uncertainty emerging from Spain before the ECB meeting, where policymakers are expected to reveal plans to unwind their multi-year stimulus.

The euro briefly waned against the dollar after the release of U.S. jobless claims data, which showed the lowest reading in 44 years, and a record high reading on the Philadelphia Fed Business Index.

“The Catalonia thing is priced in now unless it blows up really badly and people seem to be happy going long euros before the ECB meeting next week,” said John Marley, head of FX strategy at Infinity International, a currency risk management firm.

Spain’s central government said on Thursday it would suspend Catalonia’s autonomy and impose direct rule after the region’s leader threatened to go ahead with a formal declaration of independence if Madrid refused to hold talks.

The dollar briefly rose to a 13-day high against the Japanese yen in overnight trading, before reversing course later. It fell further after the headlines about Powell and was last down 0.4 percent to 112.49 yen.

The New Zealand dollar was the big mover among major currencies, with the kiwi sinking nearly 2 percent against the greenback, its biggest drop in nearly a year, after a surprise election victory for the country’s Labour party.

“The market doesn’t like either piece,” said Marc Chandler, chief global currency strategist at Brown Brothers Harriman & Co. “It doesn’t like Labour, it doesn’t like the anti-immigration, protectionist views of the New Zealand First party and it’s a change in the status quo.”