Dollar falls below ¥123 as euro jumps

On Friday, the euro was trading at $1.0885, a cent down from its post-ECB peak just under $1.10.

“Financial markets were expecting the European Central Bank to do “whatever it takes” to stimulate inflation, and instead the European Central Bank did “maybe what it’ll take” to stimulate inflation”, said Guy LeBas, head of fixed income at Janney Montgomery Scott.

Learning from its past mistake of providing overly specific forward guidance, the bank could extend its asset purchases indefinitely, only dropping the end date without providing a new one, and could cut the deposit rate, again without providing an estimate for where the bottom is for rates.

The clear divergence in economic growth between the US and Europe has become more apparent with announcements from leaders of the central banks on both sides of the Atlantic.

Following recent dovish comments from ECB President Mario Draghi, markets had expected more aggressive measures including a larger cut in the deposit rate and perhaps even an increase in the monthly pace of asset purchases. But U.S. stocks were poised to open higher.

The bond market was especially roiled by the central bank’s move.

The Euro STOXX 50 was down 0.3 percent, with Germany’s DAX down 0.5 percent.

“Our strategy is working as credit conditions and the financial markets have improved, but the process is slow and will have to continue for a long time”, said Draghi. “They did indeed have higher expectations than were there and that’s why they reacted like they reacted but that was not our intention”. Investor disappointment about the decision sent European stock markets to one of their worst days in months.

Still, the dollar resisted falling further as market attention shifted to the release later on Friday of the closely watched U.S.jobs data for November.

It was effectively an assessment from investors that 2 percent inflation in the euro zone, the single needle in the ECB’s compass, as it often used to say, will remain off the map for the foreseeable future.

While analysts said the data was strong enough to confirm that the Federal Reserve would hike United States interest rates this month for the first time in almost a decade, they said it failed to fuel a dollar rally against the euro given the ECB’s decision.

The dollar was at 122.66 yen against 122.61 yen Thursday in NY. Crude oil prices rose about 3 percent on the eve of the meeting, as traders, although expecting no cuts in oil production, hedged their positions.

Earlier in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1 per cent. Japan’s Nikkei tumbled 2.2 per cent, down 1.9 per cent for the week, the most in three months.