No action call by the European Central Bank clobbers dollar and yen; sends commodities higher

01/10/2013 6:51 pm EST


Jim Jubak

Founder and Editor,

The European Central Bank clobbered the U.S. dollar and the Japanese yen today when it left EuroZone interest rates unchanged at 0.75%. That rate, a historic low for the bank, is still well above the near 0% interest rates set by the U.S. Federal Reserve and the Bank of Japan.

That disparity itself would be enough to strengthen the euro against the dollar and the yen. But ECB President Marie Draghi threw cold water on projections by currency traders that the bank would cut interest rates at its next meeting if not today. The decision to leave rates untouched was unanimous, Draghi said at his post-meeting press conference, and based on a belief that with current policy EuroZone economies will recover in 2013. In other words no interest rate cut later either.

In trading today the euro climbed 1.4% against the U.S. dollar to $1.3252, that’s the highest level since July 5, 2011. The euro also rose 1.9% against the yen. The yen fell against the dollar as well to 88.41, the low since July 2010.

As you might imagine the euro’s strength was good news for European bond sales. Today Spain sold $7.7 billion in bonds and Italy sold $11.1 billion. The Italian sale of one-year Treasury bills priced at the lowest yield in three years.

And as you might imagine a falling dollar was good news for commodity prices.  West Texas Intermediate crude climbed 0.87%. Gold was up $18.30 an ounce or 1.1%. Silver climbed 1.8% and copper rose 1%.

With the Bank of Japan set to meet on January 21-22 and widely expected to do something big to further weaken the yen, today’s trend looks likely to run further.

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