PRODUCT PROFILE

Latest Dublin Prices

Euro rises after Draghi's comments

Thursday, March 07 15:19:20

The euro rose today, helped by healthy demand at a Spanish debt auction that eased some investor concerns about the euro zone and after the ECB left its benchmark interest rate unchanged.

The currency showed no clear reaction after the ECB decision with investors waiting for the press conference with central bank president Mario Draghi.

But the single currency rallied when Draghi gave no hints of further easing in rates. The ECB had been expected to lower its inflation and growth forecasts, giving Draghi room to cut rates and support the recession-hit economy in coming months.

Instead, Draghi said, "Inflation expectations for the euro area remain firmly anchored, in line with our aim of maintaining inflation rates below but close to 2 percent over the medium term. Overall, this will allow our monetary policy stance to remain accommodative."

Draghi also said people have underestimated the political commitment to the euro at their own cost.

Mr Draghi "has not signalled easing in the months ahead," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington D.C. "That's why we are seeing the euro rally."

The euro was up 1.1 percent on the day at $1.3109. The session peak of $1.3116 marked a five day high.

Marc Principato, director of SMB Forex Trading And Education in New York said after breaching minor resistance at $1.3050, the single currency faced more significant resistance between 1.3250 - 1.3300 in the coming week.

Most analysts say even if borrowing costs for highly indebted euro zone countries like Spain and Italy do not rise, on a more fundamental basis the struggling euro zone economy will need a more accommodative monetary policy stance along with a weaker currency to boost growth.

Spain sold 5 billion euros of bonds, hitting the top end of its targeted amount at reduced borrowing costs despite political uncertainty in Italy.

"The Spanish auction shows there is still demand (for its debt) which is positive and a little bit surprising considering what is happening in Italy," said Richard Falkenhall, currency strategist at SEB in London.