Tags: euro | Draghi | inflation | sterling

Euro Falls to Lowest in Month as Draghi Bolsters Action Pledge

Thursday, 03 April 2014 12:28 PM

The euro fell to the lowest in a month against the dollar after European Central Bank President Mario Draghi strengthened his pledge that policymakers were ready to take further steps to counter any risk of deflation.

The 18-nation currency dropped for the first time in five days versus the yen as the ECB kept its benchmark interest rate at a record low at its monthly meeting today. Sweden’s krona dropped against all of its 16 major counterparts as services expanded at a slower pace in March. The pound weakened versus the dollar after U.K. services growth slowed. The dollar gained against most major peers before data tomorrow forecast to show the biggest U.S. jobs gains since November

“It was a soft or dovish message that came out of the ECB. It seems like they are grabbing for reasons not to do anything at this meeting,” said Richard Falkenhall, a strategist at SEB AB in Stockholm. “Euro-dollar clearly came off during the press conference. It’s a dovish message and we need to see inflation pick up substantially in April actually for them not to do anything.”

The euro dropped 0.4 percent to $1.3712 at 11:32 a.m. in New York after declining 0.2 percent yesterday. It touched $1.3698, the least since Feb. 28. The common currency fell 0.4 percent to 142.49 yen after strengthening 1.9 percent during the previous four days. The dollar was little changed at 103.91 yen.

Krona Falls

The krona dropped for a second day as Swedbank AB said a gauge of services industries in the nation fell to 53.5 in March from 56.8 the previous month.

Sweden’s currency slipped 0.6 percent to 8.9704 per euro and declined 1 percent to 6.5421 versus the dollar.

The pound weakened for a third day against the dollar as Markit Economics said its U.K. services purchasing managers’ index declined to 57.6 from 58.2 in February. The median estimate in a Bloomberg survey was for it to be unchanged. A reading above 50 indicates growth.

“A lot of good news in the economy has already been in the price,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The market is expecting the first rate hike in May. Further upside for sterling is probably going to be limited at the current levels unless there are signs that rate will move well before that.”

Sterling dropped 0.2 percent to $1.6587 and rose 0.2 percent to 82.68 pence per euro.

Jobs Report

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, rose to the highest level in more than a week before an official report tomorrow that’ll show the U.S. economy added 200,000 jobs, versus 175,000 in February, according to a Bloomberg survey.

The spot index increased 0.2 percent to 1,020.80, the highest since March 24.

The pound has rallied 11 percent in the past year, the best performer after the pound of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has gained 7.9 percent in the past year, the dollar gained 0.4 percent, while the yen tumbled 11 percent.

The ECB’s decision to keep its refinancing rate at a record-low 0.25 percent was predicted by all except three of 57 economists surveyed by Bloomberg. One estimated a cut to 0.1 percent and two predicted a reduction to 0.15 percent.

‘Unconventional Instruments’

“We do not exclude further monetary policy easing” to prevent “too prolonged a period of low inflation,” Draghi said at a press conference in Frankfurt. The Governing Council is “unanimous in its commitment to also using unconventional instruments within its mandate,” he said.

Draghi also signaled concern about the euro’s exchange rate after the currency’s 6.8 percent advance against the dollar during the past 12 months.

“We really haven’t learned anything new here,” Marc Chandler, the global head of currency strategy in New York at Brown Brothers Harriman & Co., said in an interview on Bloomberg Radio’s “Surveillance” with Tom Keene and Michael McKee. “The only thing we got from them is that they haven’t made up their minds yet.”

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The euro fell to the lowest in a month against the dollar after European Central Bank President Mario Draghi strengthened his pledge that policymakers were ready to take further steps to counter any risk of deflation.
Thursday, 03 April 2014 12:28 PM
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