Business World

Sunday 19 November 2017

Euro wilts after Mario Draghi says ready for more policy support

Mario Draghi
Mario Draghi

The euro languished at 14-month lows in Asia today after reported remarks from European Central Bank President Mario Draghi rekindled expectations of more policy steps to support the euro zone.

The euro was already under pressure after surrendering to stop-loss selling on Wednesday, as a major chart bulwark at $1.2800 gave way.

The common currency fell as low as $1.2762, nearing the 2013 trough of $1.2740. A break there would take it back to levels not seen since late 2012. It last traded on Thursday at $1.2767, down 0.1 percent on the day.

"We stand ready to use additional unconventional instruments within our mandate, and alter the size or composition of our unconventional interventions should it become necessary to further address risks of a too prolonged period of low inflation," Draghi said in an interview published on Thursday by the Lithuanian business daily Verslo Zinios.

Reserve Bank of New Zealand Governor Graeme Wheeler took more direct aim at his currency, stepping up his rhetoric against kiwi strength.

"The Bank's analysis indicates that the real exchange rate is well above its sustainable level, and also above levels justified by short-term business cycle factors," Wheeler said in a statement.

That helped knock the New Zealand dollar, the tenth most traded currency globally, below 80 U.S. cents for the first time since mid-September 2013. It fell as far as $0.7998 and last traded at $0.8008.

"We're into this 'talk-your-own-currency-down' festival, with Draghi and Wheeler," said Bart Wakabayashi, head of foreign exchange for State Street Global Markets in Tokyo.

"But dollar longs are already at high levels," he said.

The euro's descent helped the dollar index climb above 85.000 for the first time since July 2010. It peaked at 85.163 and was last at 85.143, up 0.1 percent.

The greenback also pressed higher against the yen to reach 109.34, not far from last week's six-year peak of 109.46. It was last up about 0.1 percent at 109.18 yen.

Draghi's remarks followed on the heels of comments on Wednesday when he said the ECB would keep monetary policy loose for as long as it took to push ultra-low inflation back up towards the 2 percent level.

Market scepticism is growing over whether the ECB's latest offer of cheap cash to banks in exchange for lending will work.

The latest batch of data also highlighted the diverging economic outlook, and hence monetary policy pathways, of Europe and the United States.

German business sentiment fell again in September to its lowest level in nearly 1-1/2 years, while sales of new U.S. single-family homes surged in August to their highest level in more than six years.

"We recommend staying short EUR/USD in spot," analysts at Barclays wrote in a note to clients, adding they had revised their 12-month euro/dollar forecast to $1.10 from $1.25.

"Our conviction in our long USD view has grown, but our revision was driven mainly by negative developments in the euro area and inflation," they said.

Reserve Bank of Australia Governor Glenn Stevens made no attempt to talk the Australian dollar lower in a speech at an economic forum on Thursday, but the Aussie still succumbed to the kiwi's plunge.

It dipped to an eight-month low of $0.8809 and was last down 0.7 percent at $0.8822. The Aussie has fallen more than 5 percent this month against the greenback, a magnitude not seen in more than a year.

Reuters

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