The euro dropped from a six-week high against the dollar as European Central Bank President Mario Draghi said policy makers expect interest rates in the region to stay low for an extended period.
Europe’s shared currency fell versus most of its 16 major peers as Draghi said there were still “downside” risks to growth as the central bank left interest rates at a record low. The dollar strengthened as a U.S. report showed initial jobless claims dropped to a five-year low. The yen declined after Japanese investors boosted their holdings of overseas bonds. The pound advanced after a gauge of U.K. manufacturing improved in July. The Swedish krona slumped after factory orders slowed.
“Draghi mentioned the weak outlook for the economy and underlined the downside risks and that made the euro trade lower,” said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt. “The initial jobless claims in the U.S. were pretty strong, justifying a stronger dollar.”
The euro fell 0.6% to $1.3224 at 2:11 p.m. London time after climbing to $1.3345 yesterday, the highest level since June 19. The yen dropped 1% to 98.85 per dollar, the biggest decline since July 5. Japan’s currency fell 0.5% to 130.79 per euro.
Today’s ECB’s decision was predicted by all except one of 63 economists surveyed by Bloomberg News. Wells Fargo Securities had forecast a quarter-point reduction.
“The risks surrounding the economic outlook for the euro area continue to be on the downside,” Draghi said at a press conference in Frankfurt after the decision was announced. “Looking ahead, our monetary policy stance will remain accommodative for as long as necessary.”
The euro has strengthened 3.6% in the past three months, the best performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes, amid signs the region is emerging from its longest-ever recession. The yen rose 1.6% and dollar advanced 3.1%.
The dollar climbed the most in almost four weeks against the yen as the Labor Department said initial claims for jobless benefits unexpectedly declined by 19,000 to 326,000 in the week ended July 27, the fewest since January 2008.
The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 other major currencies, rose 0.5% to 1,030.94 after declining 1.4% last month.