The dollar remained little changed against the euro on Wednesday, as traders braced for a monetary policy decision from the European Central Bank on Thursday. The bankâs decision might bring increased quantitative easing to the European Union.
The European Central Bank holds a meeting tomorrow, with expectations generally pointing to an extension for its quantitative easing program. However, traders are still uncertain whether the bank will maintain its monthly asset purchases at the same level or scale it back.
Currency traders adopted cautious behavior following Italian votersâ rejection of constitutional changes that were suggested by Prime Minister Matteo Renzi and backed by his government. The rejection that resulted from a referendum on Sunday led Renzi to resign, which sent shock waves throughout markets.
However, his resignation might not have a troubling political effect in Italy. A caretaker government might lead the nation until it runs an election in 2018 as previously planned, instead of holding early elections. The dollar initially rose before quickly dropping against the euro following the event, then remained mostly stable on Tuesday and Wednesday.
Meanwhile in the United States, two economic data releases confirmed a healthier economy. The US goods and services deficit rose by 18% in October to $42.6 billion, the highest level since June, according to a report released by the Bureau of Economic Analysis. The widening gap reflected increased demand for imports as the growth of the worldâs biggest economy picked up.
Another report released by Department of Commerce said that new orders for goods manufactured in the USA rose for the fourth consecutive month in October by 2.7% to $469.4 billion, following an increase by 0.6% in September.
The dollar will get a positive push if the Federal Reserve raises its interest rates when it meets next week. Investors are expecting a 94.9% probability of a rate hike, according to futures prices tracked by the CME Group FedWatch tool.
EUR/USD traded at 1.0742 as of 14:27 GMT, its highest level on Wednesday. The pair opened trading at 1.0720 and moved no lower than 1.0712 as it maintained a tight trading range.
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