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Euro swings wildly after Draghi plan

Thursday, September 06 16:49:06

The euro was higher against the dollar but off a two-month high touched earlier today after ECB President Mario Draghi gave investors few new clues on the bank's plans to stem the debt crisis than became known to investors from a leak to the press yesterday.

Speaking at a press conference after the ECB left interest rates unchanged, Draghi said the bank agreed to launch a new and potentially unlimited bond-buying program to lower struggling euro zone countries' borrowing costs and draw a line under the debt crisis.

Seeking to back up his July pledge to do whatever it takes to preserve the euro, Draghi said the new plan, aimed at the secondary market, would address bond market distortions and "unfounded" fears of investors about the survival of the euro.

The euro zone economy will probably contract more than previously expected this year, according to new European Central Bank staff forecasts, which also raised the bank's outlook for inflation for 2012/2013.

"Draghi's over and we are digesting what he had to say," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "For the most part it was positive for the euro but still short on some details."

The euro was last at $1.2615, up 0.1 percent, with the session low at $1.2559. The single currency had climbed to $1.2650, its highest since early July after the ECB kept interest rates on hold, leaving its main rate unchanged at 0.75 percent.

Some in the market had been bracing for an interest rate cut by the ECB to support flagging growth in the euro zone. The European Central Bank will also offer banks easier access to central bank loans by loosening its collateral standards for debt from countries getting bailouts or bond market support, ECB President Mario Draghi said today.

The euro rallied on Wednesday after a string of leaks from euro zone officials made markets more confident that the ECB President Mario Draghi will back up his pledge to do "whatever it takes" to save the euro.

Two central bank sources told Reuters on Wednesday Draghi would give no details of planned amounts or explicit targets for spreads or interest rates. Most market players predicted limited gains for the euro even if the ECB gave more details than expected. The single currency has risen from a two-year low struck in late July on speculation Draghi will unveil a new bond-buying program to curb high Spanish and Italian borrowing costs.

A German Constitutional Court ruling on the euro zone bailout fund is scheduled for Sept. 12, meaning many investors would be wary of initiating large positions before then. Germany's Economy Minister Philipp Roesler said on Thursday the European Central Bank's purchases of sovereign debt were not a permanent solution to the region's problems and stressed that structural reforms needed to have priority. (C ) Reuters