The euro fell for the first time in three days after European Central Bank President Mario Draghi said policy makers will do what they must to raise inflation “as quickly as possible.”
The shared currency weakened to almost a seven-month low against the dollar and dropped versus all of its 16 major peers. Draghi said in Frankfurt that downside risks to price growth have increased in recent months. The euro also fell after German producer prices declined more in October than forecast.
"It was clearly meant to stress that the ECB remains active and we’ve seen market responses accordingly -- the euro has dropped back," said Shaun Osborne, chief foreign-exchange strategist at Bank of Nova Scotia in Toronto. "The market is taking on board the message from Draghi that we should be prepared for potentially quite aggressive actions in December."
The euro declined 0.8 percent to $1.0646 at 5 p.m. New York time, after gaining 0.9 percent in the previous two days. It touched $1.0617 on Nov. 18, the lowest since April 15. The shared currency fell 0.9 percent to 130.77 yen.
Draghi said last month that ECB policy makers would review the degree of monetary stimulus at their December meeting. Since then, the euro has weakened almost 6 percent versus the dollar as traders increased bets that officials may extend the bond- buying program or further cut the deposit rate.
German producer prices fell an annual 2.3 percent in October, after a 2.1 percent decline the previous month, the nation’s federal statistics office said Friday. Economists surveyed by Bloomberg forecast a 2 percent drop.
“We should be in little doubt that the ECB are again attempting to adjust the monetary policy dial, likely via extending and increasing QE, while another cut in the deposit rate is also on the cards,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “While far from an explicit aim, easing monetary conditions via a cheaper euro is also a positive by-product of such policies.”
The euro pared its decline as ECB official and Bundesbank President Jens Weidmann said he didn’t see any reason to “paint a gloomy picture” of the region’s economy. He warned that the longer ultra-loose monetary policy was in place, the less effective it can become.
--With assistance from Kristine Aquino.
To contact the reporters on this story: Andrea Wong in New York at awong268@bloomberg.net; Eshe Nelson in London at enelson32@bloomberg.net To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net Paul Cox
