Euro Trades Close to 3-Week Low as Draghi Stands Pat on Stimulus

  • ECB plan to wait until economic impact of Brexit is clearer
  • ‘Nothing major has been announced at all,’ SocGen’s Tan says

Has Draghi Failed to Deliver Something New for the Bears?

The euro reached a three-week low Thursday after European Central Bank President Mario Draghi refrained from announcing any expansion to its bond-purchase program and said officials will wait until the economic impact from Brexit is clearer.

The single currency fell against most its 16 major counterparts. While economic risks are tilted to the downside, euro-area markets have weathered recent volatility well and financing conditions remain “highly supportive,” Draghi said at a news conference in Frankfurt.

“For the euro itself, this is a neutral event,” said Peter Frank, head of Group-of-10 currency strategy in London at Banco Bilbao Vizcaya Argentaria SA. “There may have been slight net-selling pressure on the euro into the meeting, but given such a lack of fresh detail this mild net selling should be reversed.”

The euro was little changed at $1.1027 as of 8:19 a.m. in Tokyo Friday, after declining as low as $1.0980 in New York, the weakest level since June 27. It was steady at 116.65 yen.

In the build-up to the policy decision, speculation had grown that the ECB’s 80 billion-euro ($88 billion) a month quantitative-easing program would be fine-tuned. That came after the U.K.’s June 23 referendum to leave the European Union increased demand for haven assets, driving down bond yields to records and helping shrink the supply of German securities eligible for quantitative-easing purchases.

“Basically nothing major has been announced at all,” while investors may have envisioned some kind of “tinkering” with the asset-purchase program, said Alvin T. Tan, a London-based foreign-exchange strategist at Societe Generale SA. “The market was thinking they might increase the pool of assets, for example by tweaking some of the limits they have.”

Europe’s common currency declined about 3 percent from the U.K. referendum vote through Wednesday, amid speculation that Draghi and his colleagues in the Governing Council would ease monetary policy further as they struggle to move inflation toward 2 percent. Derivatives prices signaled the chances were 51 percent that the ECB would cut interest rates by its October meeting.

The euro is forecast to weaken to $1.08 by the end of the year, according to the median estimate in a Bloomberg survey of analysts.

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