Euro Drops From 2 1/2-Year High as Draghi Hints at June Action 

The euro weakened from a 2 1/2-year high against the dollar as European Central Bank President Mario Draghi said policy makers were comfortable with taking additional policy action in June if needed.

The common currency dropped versus all except two of its 16 major counterparts as his comments raised the prospect of additional stimulus that tends to weaken foreign exchange rates. Australia’s dollar strengthened to a three-week high after employers boosted payrolls and Chinese trade data improved. A gauge of the U.S. dollar fell to the lowest since October before Federal Reserve Chair Janet Yellen testifies for a second day to lawmakers. Norway’s krone advanced for a third day.

“The euro reversed its course after Draghi said the ECB is comfortable with acting in June,” said Arne Rasmussen, head of foreign-exchange research at Danske Bank A/S in Copenhagen. “The market appears to take that seriously. The ECB has done the talk, now it’s time it walk the walk.”

The euro dropped 0.2 percent to $1.3889 at 2:30 p.m. London time after appreciating to $1.3993, the strongest level since Oct. 31, 2011. The 18-nation currency fell 0.4 percent to 141.23 yen. The dollar weakened 0.2 percent to 101.70 yen.

The euro advanced earlier as the ECB kept its benchmark interest rate at a record-low 0.25 percent at today’s meeting in Brussels as predicted by 56 of 58 economists surveyed by Bloomberg News. The other two had forecast a reduction.

ECB ‘Comfortable’

“The Governing Council is comfortable with acting next time, but before we want to see the staff projections that will come out in the early June,” Draghi said after the decision was announced. “There wasn’t a decision today. It’s a preview of the discussion we will have next month.”

The euro has gained 5.4 percent in the past 12 months, the third-best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar fell 0.8 percent and the yen weakened 3.7 percent.

A stronger euro “in the context of low inflation is cause for serious concern,” Draghi said.

The Aussie rose versus all except one of its 16 major counterparts today as the statistics bureau said employers added 14,200 jobs in April, surpassing the forecast of 8,800 in a Bloomberg News survey. The unemployment rate stayed at 5.8 percent.

Chinese exports climbed 0.9 percent in April from a year earlier, when figures were inflated by fraudulent invoicing, the customs administration said in Beijing. Imports gained 0.8 percent leaving a trade surplus of $18.46 billion.

‘Recovery Mode’

“Australia might actually be in a recovery mode,” said Desmond Chua, a strategist at CMC Markets in Singapore. Trade figures in China have “definitely helped improve overall sentiment on the Chinese markets, and we’re looking at some form of spillover into the Aussie dollar,” he said.

Australia’s currency rose 0.7 percent to 93.88 U.S. cents after climbing to 93.94 cents, the strongest since April 15.

The U.S. dollar fell for the fourth time in five days against the yen before Yellen speaks in Washington.

“A high degree of monetary accommodation remains warranted,” she said yesterday to the Joint Economic Committee of Congress. “Many Americans who want a job are still unemployed,” and inflation is below the central bank’s 2 percent target, she said.

‘Considerable Time’

The Fed said on April 30 it will keep the benchmark interest rate close to zero for a “considerable time” after its bond-buying program ends. It reduced monthly purchases to $45 billion, its fourth straight $10 billion cut, and said further reductions in “measured steps” were likely.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, declined 0.1 percent to 1,003.01 after falling to 1,000.59, the lowest since Oct. 28.

Norway’s krone strengthened after a report showed manufacturing production rose 0.8 percent in March, beating the forecast of 0.2 percent in a Bloomberg survey. Norges Bank kept its main interest rate unchanged today and maintained its commitment to tighten monetary policy in mid-2015.

The Norwegian currency appreciated 0.7 percent to 8.1617 per euro after advancing to 8.1560, the strongest since Nov. 8. The krone gained 0.6 percent to 5.8762 per dollar.

The South African rand rose to its strongest level this year as election results showed the ruling African National Congress is on course to win a fifth election victory.

The currency advanced 0.9 percent to 10.3563 per dollar after appreciating to 10.3365, the strongest since Dec. 27.

 

Source: bloomberg

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