Euro Hits Two-Week Low Following Draghi Comments

February 8, 2013 in Forex Fundamentals and News

The single currency saw a sharp decline against the dollar on Thursday, after ECB President Mario Draghi commented on the effects the euro’s recent gains will have on the economy.

Mr Draghi stated that its increase may affect the region’s recovery in slowing inflation and growth as well as demand for Eurozone assets.

The other key issue was the ECB interest rate which was left unchanged at 0.75%, as widely expected.

During the news conference, the ECB chief said the latest gains for the euro are a sign of confidence. However, since the exchange rate is essential for growth and price stability, a close monitoring will be done in order to see “whether the appreciation is sustained and will alter our risk assessment.

Following the news, the euro, which gained 12% against the dollar since the summer, experienced its biggest five-day fall against the greenback in seven months, dropping to 1.3381 during yesterday’s trading. In the early hours on Friday, the single currency hovered around its low levels from yesterday and was trading at 1.3409 at the time of writing.

Mario Draghi said that business activity was returning and the Euro area “should gradually recover’’ later in 2013; however the economic situation still ‘’remains fragile’’.

A strong euro could hurt European exports’ competitiveness on the global markets and decrease inflation in the Eurozone because of cheapening imports.

According to analysts, however, the euro could be backed by investors’ sentiment that the ECB favors a much weaker monetary easing compared to that of the Fed and the BoJ.

EUR/USD chart


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