Euro stabilises as Draghi adopts cautious approach
THE euro traded marginally higher against the dollar, recovering from a sharp sell-off spurred by cautious comments made by European Central Bank president Mario Draghi after the bank left interest rates at record lows.
During an ECB news conference after the central bank left its main interest rate unchanged at a record low of 0.25pc yesterday, Mr Draghi said the central bank was monitoring money market conditions and hinted that there may be downside risks to its current view on inflation.
"The risks surrounding the economic outlook for the euro area continue to be on the downside. Developments in global money and financial market conditions and related uncertainties may have the potential to negatively affect economic conditions," he added during a news conference.
The euro fell as low as $1.3547, its lowest since December 5, after the comments. It last traded at $1.3594, up 0.1pc on the day.
Against the yen, the single currency also traded up 0.1pc at 142.48.
"All that seems to have fuelled speculation that more easing may be on the cards before long," said Valentin Marinov, G10 strategist at CitiFX, a division of Citigroup.
"We suspect that the euro could remain under some pressure in the near term," he said.
The ECB's outlook contrasts with the US Federal Reserve, which last month announced it would start paring the amount of bonds it buys each month. Relative interest rates should continue to favour the dollar over the euro.
"Draghi sounded very cautious on the outlook for growth and said inflation would remain subdued," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington DC.
"By his own account, Draghi's language on accommodative policy 'showed firmer words', which contrasted the outlook for Fed policy and sent the euro sharply lower this morning," he said.
There were some positive signals in Europe yesterday. German industrial output beat forecasts, while Portugal was the latest recovering economy on the eurozone's periphery to meet strong demand for a bond issue by syndication.
Some 14pc of Ireland's issue earlier this week was taken up by non-eurozone investors who will have to buy euro to buy the bonds.
Market participants are now firmly focused on US employment figures. (Reuters)