Euro Declines as Draghi Cites ‘Excessively Low’ Inflation

The euro declined for the first time in four days as European Central Bank President Mario Draghi called for structural reforms in the region and pledged to expand stimulus measures if needed.

The greenback gained against 12 of its 16 major peers as Goldman Sachs Group Inc. sees it strengthening more versus the euro, yen and three other peers in revised 12-month forecasts. The U.S. currency erased earlier losses after initial jobless claims unexpectedly fell last week. The yen touched a three-week high as investors pushed back bets for when the Federal Reserve will increase interest rates.

“Whenever Draghi speaks, people expect it to be euro negative,” Robert Sinche, a global strategist at Pierpont Securities LLC in Stamford, Connecticut, said by phone. “There will be this continued discussion about a currency being a lever that’s left for them. Fiscal-policy levers aren’t there, monetary-policy levers aren’t there, so the exchange rate is one of the few levers that can probably be pulled.”

The euro fell 0.3 percent to $1.2691 as of 5 p.m. New York time after earlier gaining as much as 0.5 percent. The shared currency lost 0.6 percent to 136.85 yen. The dollar fell 0.2 percent to 107.84 yen after touching 107.53, the lowest since Sept. 17.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, rose 0.3 percent to 1,065.53 after dropping 1.5 percent in the previous three days.

Yen Gains

The yen rallied versus 14 of its 16 major peers, and is on track for its first weekly gain versus the dollar since August.

Bank of Japan Governor Haruhiko Kuroda said today that stable currency moves are desirable, after the nation’s currency fell the most since January 2013 last month. He declined to comment on the level of the yen, speaking to reporters in Washington as finance ministers and central bankers gather for annual meetings of the World Bank and International Monetary Fund.

Japanese officials are evaluating the success of a monetary policy that’s seen the central bank buying 60 trillion ($557 billion) yen to 70 trillion yen of assets annually. There are “many options” for additional easing as the central bank targets 2 percent inflation, Kuroda said.

Australia’s currency dropped after touching the highest level since Sept. 23 as traders reconsidered data showing employers unexpectedly cut payrolls last month following changes to labor-market figures by the statistics bureau. The Aussie fell 0.7 percent to 87.83 cents after advancing to 88.99 cents.

Revised Forecasts

Goldman Sachs said in a note to clients today that the fundamentals underpinning dollar strength remain as it revised its 12-month forecast versus the euro to $1.15 from $1.20 and the yen to 115 from 110. It also revised up its estimates for the greenback against the dollars of Canada, Australia and New Zealand.

The dollar plummeted yesterday after a number of Federal Open Market Committee participants said the nation’s expansion “might be slower than they expected if foreign economic growth came in weaker than anticipated,” according to minutes of their Sept. 16-17 meeting released yesterday.

Futures traders cut bets to a 33 percent chance the Fed will increase its near-zero benchmark rate by July next year, down from 45 percent odds two days ago.

‘Worried’ Fed

“When the Fed says they’re worried about the global economy, that strikes a chord with everybody,” Andrew Wilkinson, chief market analyst at Interactive Brokers LLC, said in a phone interview from Greenwich, Connecticut. “While the Fed’s probably going to be the first central bank to raise rates, it’s still a dot on the horizon. So the dollar-strength theory is being challenged for now.”

The dollar gained as a Labor Department report showed in Washington that U.S. initial jobless claims declined by 1,000 to 287,000 in the week ended Oct. 4. The four-week average decreased to 287,750, the least since February 2006.

The euro dropped versus the yen after Draghi said investors predict the ECB will start increasing interest rates by 2017 as he pledged to expand stimulus measures if needed.

“I am uncertain there will be very good times ahead if we do not reform now,” Draghi said in a speech at the Brookings Institution in Washington today. “We are ready to alter the size and/or the composition of our unconventional interventions, and therefore of our balance sheet, as required.”

The ECB has introduced a series of measures from negative interest rates and long-term loans to asset purchases to fend off deflation and rekindle growth in the currency bloc. At the same time, some European governments have dragged their feet on improving competitiveness and reducing unemployment.

The euro weakened 1.2 percent in the past three months among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has risen 6.8 percent, the most, and the yen added 0.3 percent.

(A previous version of this article corrected the yen forecast in the sixth paragraph to 110.)

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