Forex today: volatility over Fed and ECB headlines, euro rockets to fresh daily highs

Forex today was dominated by the Draghi and Yellen headlines, both of which were a weight to the greenback and had the euro perform extremely well through the 1.13 handle to fresh highs for 2017.

The euro went to the highest level in 10 months vs the dollar as Draghi told an ECB symposium that “while there are still factors that are weighing on the path of inflation, at present they are mainly temporary factors that typically the central bank can look through.”  However, Draghi also cautioned that “a considerable degree of monetary accommodation is still needed for inflation dynamics to become durable and self-sustaining.”

Later on in the day, Yellen was surprisingly less hawkish and a hint of dovishness was heard by markets that had been preparing for a bullish outcome for the dollar. Instead, DXY dropped to a two-week low. Yellen, in similar words, explained that there are concerns about inflation and that the Fed is keeping a very close eye on things. Fed's vice chair Fischer also warned of elevated risk appetite.

"Clouding the USD outlook, the IMF cut its forecast for the U.S. economy, removing assumptions for fiscal stimulus from President Trump’s plan to cut taxes and boost infrastructure spending," explained  Dennis Pettit in New York, Bloomberg, adding, "The IMF said the U.S. will probably have a hard time hitting Trump’s target of 3% annual growth, as it’s faced with problems ranging from an aging population to low productivity growth."

EUR/USD trading is near to a session high of 1.1349 at the time of writing while EUR rose as much as 1.9% vs JPY and to its highest level in nearly 15 months. EUR/GBP made a high of 0.8863. GBP/USD, however, was also a strong performer and slowed the cross up, making a high of 1.2862.  USD/JPY rallied with a lift from a rise in U.S. Treasury yields and rose to its highest in more than a month before supply back to 112.20 from 112.46 high. The antipodeans were mixed with AUD/NZD making back lost ground, both pairs unable to take much advantage out of the dollar's weakness and unable to make a reversal of the overnight highs seen in yesterday's Asian session. AUD managed a gain of just 0.03% for the US session vs the last close while the bird was down 0.21%.

Key data ahead

More Fed speak from Kaplan early on in the session. 

Keynotes from US session

• US Dollar Index drops sharply, eyes lowest close since October
• Fed's Yellen: We intend to very gradually and predictably to shrink our balance sheet
• Fed's Yellen: We are not getting a consistent story on inflation
• Fed's Fischer warns to expect decreasing risk appetite
• ECB's Draghi: ECB could look through transitory inflation weakness - Bloomberg