Euro Falls as Draghi Boosts Speculation of Deposit-Rate Cut

  • ECB President says economic risks are `clearly visible'
  • 19-member shared currency slides against most major peers

The euro approached a six-month low against the dollar after European Central Bank President Mario Draghi said economic risks to the region were “clearly visible,” stoking speculation he’s preparing to bolster currency weakening stimulus measures.

The shared currency slid against 12 of its 16 major peers after Draghi told European lawmakers that the ECB’s quantitative-easing program will be extended if needed to reach its inflation goal. The currency has tumbled 5 percent since the Oct. 22 policy meeting, when officials discussed reducing the central bank’s deposit rate.

“There was a slight risk that President Draghi, having seen the euro weaken a lot since the last meeting, might back off the need to lower the deposit rate,” said Chris Turner, London-based head of currency strategy at ING Groep NV.

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However, with his latest comments, “he’s given the market some confidence that the ECB is probably going to cut the deposit rate and probably will increase the size of QE,” Turner said. “There’s a chance in December that we break below $1.05.”

The euro fell 0.3 percent to $1.0715 at 7:02 a.m. New York time. It touched $1.0675 on Nov. 10, the lowest since April. The 19-nation currency dropped 0.1 percent to 131.80 yen, while Japan’s currency weakened 0.1 percent to 123.01 yen to the dollar.

’03 Low

The start of the ECB’s 1.1 trillion-euro bond-buying program in March pushed the euro to the weakest level since 2003, assisting policy makers’ efforts to boost inflation and make the region’s exports more competitive. Yet with consumer-price growth at zero last month, and the euro struggling to retest its lows, speculation is growing that further action is needed.

The biggest impact may lie in cutting the deposit rate. The ECB lowered the rate to below zero last year, and it’s now minus 0.2 percent.

“With the large impact of the ECB’s initial shift to QE showing signs of fading -- and mounting concerns about constraints on the supply of eligible assets for purchase -- we see little impact on the euro from the ECB’s extension of purchases,” Marvin Barth, head of European foreign-exchange strategy at Barclays Plc in London, wrote in a report. “But we expect a large effect on the euro from a further cut to the deposit rate.”

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