|09-04-2014, 04:33 PM||#1|
Euro at weakest since July 2013 on Draghi surprise
The euro fell sharply against the dollar on Thursday, after European Central Bank Mario Draghi delivered a surprise policy decision to cut interest rates and purchase fresh asset purchases to bolster the economy.
The FX markets are still in shock after the ECB delivered a second round of 10-point cuts to its three key interest rates at the September meeting on Thursday, and announcing it would start purchasing broad portfolio of asset backed securities (ABS) next month, a move that will have sizeable impact on the bank`s balance, according to the ECB President, who said the ECB did not take unanimous decision on the new policy measures announced on Thursday.
Speaking at ECB`s monthly press conference in Frankfurt, Draghi said the bank has lowered its 2014 forecast for euro zone growth and inflation, but kept its medium-term outlook for consumer prices subdued. The quarterly forecast came as follows:
- 2014 growth revised lower to 0.9% from its June forecast of 1.0%. 2015 growth revised downward to 1.6% while upward to 1.9% in 2016.
- 2014 inflation revised lower to 0.6% compared with 0.7% in June. No change for 2015 and 2016 inflation, at 1.1% and 1.4% respectively.
The bank`s governing council also discussed quantitative easing in the form of an outright asset purchase program.
"QE was discussed. Some of our Governing Council members were in favour of doing more than I`ve just presented, and some were in favour of doing less. So our proposal strikes the mid-road," Draghi said.
The euro was the biggest loser following the announcement, slumping more than 1% against its US counterpart to as low as $1.2994, a level not seen since July last year.
The Bank of England (BoE)`s decision, despite no change in policy this month, was a major mover for the sterling falling against the dollar to the lowest since Febraury, around $1.6432.
The dollar gains also helped keep the lid on the euro and pound despite the mixed run of news showing jobless claims were slightly changed last week at 302 thousand , while ADP said the economy added 204,000 in August in the private sector.
The USDIX which tracks the change in the greenback against a six-currency basket, traded around 83.33 after hitting a one-year high of 83.45.
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