Euro hits 2-week high vs. dollar as ECB signals readiness to discuss QE’s end

The U.S. dollar dropped against the euro Wednesday, with the shared currency extending gains as European Central Bank officials signaled they’re ready to ramp up discussions about when to end the central bank’s massive bond-buying program.

What are currencies doing?

The ICE U.S. Dollar Index which measures the buck against six rivals, fell 0.3% to 93.630. The broader WSJ Dollar Index  lost 0.1% to 85.97.

The euro climbed to $1.1775 from $1.1720 late Tuesday in New York, on track for a two-week high against the greenback.

The British pound  also traded around a two-week high, rising to $1.3428 from $1.3395.

Against Japan’s yen the dollar rose to ¥110.17 from ¥109.79.

The Mexican peso  gained ground after hitting a 15-month low against the dollar on Tuesday. The greenback traded at 20.408 pesos, down from 20.459 pesos.

What’s driving markets?

The euro swung higher after two ECB officials on Wednesday said the bank’s meeting on June 14 will include discuss about when to start winding down its €2.5 trillion ($2.94 trillion) bond-buying, or quantitative easing, program.

The comments by ECB Chief Economist Peter Praet and ECB policy maker Jens Weidmann appear to back up a Bloomberg report published Tuesday that the central will discuss QE’s end when policy makers gather in Riga, Latvia. The euro climbed above $1.17 after Tuesday’s report.

“Next week, the Governing Council will have to assess whether progress so far has been sufficient to warrant a gradual unwinding of our net purchases. In making its assessment, it will consider the underlying strength of the euro area economy and the pass-through to wage and price formations,” said Praet in prepared remarks for a speech in Berlin.

Meanwhile, Weidmann said market expectations for the central bank to end quantitative easing this year are plausible, according to media reports.

The ECB has previously said it plans to run the program of purchasing debt from eurozone countries and corporate debt from European companies until the end of September, but has left open the option to continue purchases to help eurozone inflation reach the ECB’s target of just below 2%.

Next week’s ECB meeting “will be an exciting one,” wrote Carsten Brzeski, chief economist covering Germany and Austria at ING, in a note.

Meanwhile, the peso slightly recovered after hitting a multimonth low against the dollar in the prior session as trade tensions surround Mexico and the U.S. The Mexican government late Tuesday published a list of U.S. goods — including bourbon, pork and cheeses — that will face import tariffs. That’s a retaliatory move after the U.S. said it would place duties on Mexican steel and aluminum.

But investors will keep watching trade-related developments after Treasury Secretary Steven Mnuchin reportedly urged President Donald Trump to exempt Canada from metals tariffs at a meeting Tuesday. That adds to a report Wednesday that China had offered to buy some $70 billion of U.S. goods to get the Trump administration to cool its tariff threats.

Leaders of the Group of Seven nations will likely discuss trade as they hold talks in Canada on Friday and Saturday.

Against the Canadian dollar  on Wednesday, the greenback bought C$1.2910, down from C$1.2967.

What are strategists saying?

“Even though some market participants will take today’s comments by Peter Praet as a prelude of an imminent decision next week, we still don’t think that the ECB will easily give away flexibility and room for maneuver on QE in a situation in which downside risks to the economic outlook have increased and political risks (be it from Italy or later this year from Brexit) could easily re-emerge,” said ING’s Brzeski. “Against this background, clear hints at [the] end of QE, while keeping full flexibility, at next week’s meeting still looks like the most likely outcome.”

What else is in focus?

Data on the trade deficit for April are due at 8:30 a.m. Eastern Time, along with readings on productivity and unit labor costs for the first quarter.