Euro tumbles on ECB decision to rein in bond purchases

The European Central Bank has taken its biggest step yet in weaning the euro zone economy off years of stimulus but said the economic outlook was still dependent on its lavish monthly purchases of euro zone bonds.
The euro dropped 1.35 per cent to US$1.1653 after the ECB said it would cut its bond purchases in half to 30 billion euros a month from January.
The euro dropped 1.35 per cent to US$1.1653 after the ECB said it would cut its bond purchases in half to 30 billion euros a month from January. PHOTO: REUTERS

NEW YORK (REUTERS) - The euro had its worst day against the US dollar in 16 months on Thursday (Oct 26) after the European Central Bank began weaning the euro zone off loose monetary policy, while US Treasury yields rose slightly, hurt by weak demand at an auction of 7-year notes.

The dollar index rose 0.99 percent, with the euro down 1.35 per cent to US$1.1653 after the ECB said it would cut its bond purchases in half to 30 billion euros a month from January. However, it hedged its bets by extending asset purchases by nine months given low inflation.

"Overall, the ECB's focus on a very cautious and drawn-out tapering process that avoids pushing the euro higher was clearly more dovish than markets had been expecting," said James Chen, head of research at Gain Capital.

Benchmark 10-year US Treasury notes last fell 5/32 in price to yield 2.4609 per cent, from 2.444 per cent late on Wednesday.

The 30-year bond last fell 10/32 in price to yield 2.9706 percent, from 2.955 per cent late on Wednesday.

Yields fell earlier in the session, in line with the euro zone bond market, after the ECB's meeting.

A report from Politico saying that current Federal Reserve Chair Janet Yellen was out of the running for the top US central bank job briefly nudged rates higher. But a White House official told Reuters: "No final decision has been made."

Yields weakened later in the day after a soft auction of US 7-year notes drew the weakest demand since August last year.

The US 7-year note was sold at 2.280 percent, higher than the expected yield at the bid deadline. The yield was the highest at an auction for this debt maturity since January.

Gold dipped as the dollar gained against the euro after the ECB decision to trim bond purchases as it hedged that move by also extending the lifespan of its bond-buying program.

Spot gold dropped 0.8 per cent to US$1,267.01 an ounce.

On Wall Street, the Dow Jones Industrial Average and the S&P 500 closed higher, boosted by upbeat corporate results on one of the busiest days of third-quarter earnings. Seventy-four percent of 231 S&P companies have beat profit expectations as of Thursday.

The Dow rose 71.4 points, or 0.31 per cent, to 23,400.86, the S&P 500 gained 3.25 points, or 0.13 per cent, to 2,560.4 and the Nasdaq Composite dropped 7.12 points, or 0.11 per cent, to 6,556.77.

Ford Motor reported a better-than-expected quarterly net profit, driven largely by US sales of its high-margin pickup trucks. It said it would begin to test self-driving cars in some cities next year. The company's shares were up 1.9103 percent.

Twitter's shares rose 18.4947 per cent. The social network company said it could turn its first ever profit in the fourth quarter, after making cost cuts and finding new revenue sources. The social network company said it could turn its first-ever profit in the fourth quarter, after making cost cuts and finding new revenue sources.