Euro Falls First Time in 4 Days as Praet Says ECB Can Cut Ratesby and
ECB policy maker says `rate reduction remains in our armory'
Europe's shared currency pares weekly gain versus dollar
The euro fell for the first time in four days after European Central Bank Executive Board member Peter Praet said there was still scope for lower interest rates.
The shared currency weakened against most of its 16 major peers and pared a weekly gain versus the dollar. The ECB could cut rates if added negative shocks materialize that worsen the region’s economic outlook, Praet, who is also the central bank’s chief economist, said in an interview with La Repubblica published Friday. “We have not reached the physical lower bound” for interest rates, he said.
The euro shook off the ECB’s latest dose of easing -- when policy makers extended quantitative easing and cut deposit and interest rates -- after ECB President Mario Draghi said officials had no plans to lower rates further. Praet’s comments appeared to walk back those remarks, raising the possibility of further stimulus that typically encourages a weaker currency.
“The market was under the impression that the ECB had reached a lower bound,” said Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York. “Does it really reverse the euro rally? Probably not. But it does put a bit more doubt into euro longs.” A long position is a bet on a currency strengthening.
The euro fell 0.4 percent to $1.1270 as of 5 p.m. New York time, paring this week’s gain to 1 percent.
The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, added 0.3 percent, after falling 2.2 percent in the previous two days. It dropped earlier to the lowest level since June.
The euro has gained 2.5 percent versus the dollar since March 9, the day before the ECB lowered interest rates and Draghi said he didn’t anticipate additional cuts. The shared currency also rose as the dollar was weighed down by the Fed’s lower rate-path projections.
The euro is forecast to weaken to $1.08 by year-end, according to the median estimate of economists in a Bloomberg survey.
Draghi told European Union leaders Thursday that the central bank has “no alternative” to its recent rate cuts and monetary policy actions, according to two officials familiar with deliberations. He said to reporters in Brussels that the ECB can’t do much about some of the euro area’s biggest vulnerabilities, even as he pledged that rates would stay low and to use “all the appropriate instruments” as the outlook requires.
“The comments from the ECB’s Praet and Draghi have exerted some pressure on the euro,” said Peter Dragicevich, a foreign-exchange strategist at Commonwealth Bank of Australia in London, “A drift back down towards $1.10 is more likely.”