Forex: Greenback spikes on risk off trade

Investing.com - The U.S. dollar traded higher against the euro on Thursday, as the risk off trade was triggered when European Central Bank President Mario Draghi disappointed market expectations for monetary policy action to manage the debt crisis in the euro zone.

During U.S. afternoon trade, the dollar was higher against the euro, with EUR/USD falling 0.49% to 1.2166.

Triggering the risk off sentiment, Draghi stated the bank may undertake bond purchases in order to bring down the "exceptionally high" borrowing costs of stressed euro zone members, but provided no specific details on how and when these activities may be carried out.

Draghi also said that any such action by the ECB was conditional on euro zone governments experiencing difficulty on bond markets activating the bloc’s bailout funds to purchase government bonds and accepting strict conditions and supervision.

The statement disappointed market expectations for bold steps to counter the debt crisis, which have been building since Draghi pledged last week to do whatever is necessary to preserve the euro.

The ECB left interest rates unchanged at a record low 0.75% earlier.

The greenback was also higher against the pound, with GBP/USD down 0.19% to hit 1.5505.

The Bank of England’s monetary policy committee kept the benchmark interest rate unchanged at 0.5% earlier Thursday and held the size of its quantitative easing program at GBP375 billion.

Earlier in the day, data showed that the U.K. construction sector unexpectedly returned to growth in July, as the Markit/CIPS construction purchasing managers’ index recovered to 50.9 from 48.2 in June, defying expectations for a decline to 48.0.

The data came one day after a report showing that manufacturing activity in the U.K. contracted at the fastest pace in more than three years in July, fuelling expectations for another round of easing by the central bank in the coming months.

Elsewhere, the greenback was lower against the traditional safe haven yen, but pushed higher against the Swiss franc, with USD/JPY losing 0.29% to trade at 78.19 and USD/CHF rising 0.62% to 0.9889.

The greenback was little changed against its Canadian, Australian and New Zealand counterparts, with USD/CAD dipping 0.03% to 1.0054,AUD/USD sliding 0.09% to 1.0449 and NZD/USD inching up 0.11% to trade at 0.8084.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.39% to 83.55.

In the U.S., the Department of Labor said the number of people who filed for unemployment assistance last week rose to a seasonally adjusted 365,000, from an upwardly revised 357,000 in the preceding week.

Analysts had expected initial jobless claims to rise to 370,000 last week.