Euro at 3-week low

The euro slid to a three-week low against the dollar and fell versus the yen yesterday after European Central Bank president Mario Draghi highlighted downside risks to eurozone growth and said monetary policy would stay accommodative.

The euro briefly pared losses against the dollar after final data showed US gross domestic product growth was more tepid than previously estimated in the first quarter, but the impact on currencies was fleeting. US growth was held back by moderate consumer spending, weak business investment, and declining exports.

The ECB remained the key focus. Draghi said the economic recovery in the eurozone would be gradual but fragile, in line with his comment, a repeat of one made the previous day, that the ECB was nowhere near exiting its accommodative monetary policy.

“A recession-hit economy, rising borrowing rates for debt-struggling nations, and the ECB’s accommodative and ready-to-act-anew stance are all conspiring to pressure the euro,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

Dovish easing sentiment surrounding the ECB contrasts with the expectations for the Federal Reserve to slow its bond purchases sooner than other central banks.

Spreads between 10-year US Treasuries and German bund yields have widened to their highest since April 2010 in favour of dollar assets.

In early afternoon trading, the euro was down 0.6% at $1.3009, not far from $1.2983, its lowest since June 3. An options barrier was defended at $1.30 in the New York time zone but selling pressure ultimately outweighed support at that level. Technical analysts said a daily close below its 200-day simple moving average at $1.3072 could trigger more falls toward and below $1.30.

Euro volume against the dollar was at $6.3bn in afternoon trading, based on Reuters Dealing data. Against the yen, the euro was last down 0.7% at 127.08 yen, after earlier hitting a one-week low at 126.53 yen.

Analysts pointed to a recent sharp rise in short-term euro inter-bank lending rates, which could drive the ECB to respond by easing monetary conditions.