FX Roundup: Draghi comments hit euro, Aussie breaches $0.70
The euro continued to trade lower on Friday following dovish comments made by European Central Bank (ECB) president Mario Draghi.
On Thursday, the ECB maintained headline interest rates while Draghi cut growth and inflation forecasts and indicated that more monetary easing may be on the cards. The euro hit a fresh four month low against the yen in early Asian trading. At 1520 BST, the euro was fetching JPY132.53 down 0.77%, while changing hands with the dollar at $1.1108, down 0.13%. However, the pound sterling was broadly against the euro, changing hands at €1.36730.
Jane Foley, senior currency strategist Rabobank, said, “Headwinds stemming from weaker growth in emerging markets suggest there is a risk the Bank of England action on interest rates could be pushed back.”
“However, since this dynamic is also affecting the outlook for ECB policy, it does not shift our view that EUR/GBP is likely to trend lower," she said.
"Investors may be less willing to short the euro to fund investments into risky emerging market currencies but sterling is not a high risk currency. We view the recent up move in EUR/GBP as overdone and look for a test of 0.70 on a six month view.”
Meanwhile, the Australian dollar continued to slip further against the greenback along with a basket of commodities linked currencies. Late in the European session, the Aussie was down 1.08% changing hands at US$0.6941, having tested the 0.70 level in recent session.
Kit Juckes, head of forex at Societe Generale, said, “Deterioration in risk conditions may benefit the EUR but hurt the AUD. The correlation between EUR/USD and AUD/USD recently vanished, while the forex volatility market is still pricing a positive correlation. This dislocation offers an attractive discount to a Dual Digital option benefiting from diverging EUR and AUD paths.”
The dollar also rose against the Norwegian Krone changing hands at NOK8.3184 up 0.43%, and the Canadian dollar changing hands at CAD$1.3246 up 0.51%.