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.
The yen declined after the Ministry of Finance said Japanese investors bought 233.2 billion yen more overseas bonds and notes than they sold last week.
Bank of Japan Governor Haruhiko Kuroda in April unveiled a plan to buy more than 7 trillion yen of Japanese debt a month to spur the economy and end deflation. He has said the policy would prompt domestic investors to rebalance their portfolios by purchasing foreign bonds and other assets.
The pound rose from the weakest since March the euro as the Bank of England’s nine-member Monetary Policy Committee held its bond-purchase target at 375 billion pounds. It also kept the benchmark interest rate at 0.5%.
An index of U.K. manufacturing climbed to 54.6 this month from a revised 52.9 in June, London-based Markit Economics and the Chartered Institute of Purchasing and Supply said.
Bank of England Governor Mark Carney will present the MPC’s review of steering policy expectations next week after saying in July that bets on future interest rates were “not warranted.”
“We expect pound downside pressure to continue to build,” Morgan Stanley strategists including Hans Redeker in London wrote today in a note to clients. “The move towards a more transparent BOE is expected to continue.”
The pound appreciated 0.4% to 87.14 pence per euro after earlier sliding to 87.70, the weakest level since March 12. The U.K. currency was little changed at $1.5185.
Sweden’s krona weakened against all except two of its 16 major peers as Swedbank AB said a manufacturing index based on responses from purchasing managers fell to a seasonally adjusted 51.3 in July from 53.5 the previous month. Economists surveyed by Bloomberg predicted a reading of 53.
The krona slumped 0.9% to 6.575 per dollar and weakened 0.4% to 8.7008 per euro.