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Euro plummets on surprise rate cut

Thursday, September 04 16:11:28

The euro hit fresh 14-month lows against the U.S. dollar and nearly two-year lows against the Swiss franc today after the European Central Bank cut interest rates and said it would launch an asset purchase program to ward off deflation.

ECB President Mario Draghi, speaking at a news conference shortly after the ECB unexpectedly cut already ultra-low interest rates by another 10 basis points, said the central bank would start purchasing securitized loans and covered bonds next month.

The euro sank to $1.2997 against the U.S. dollar, marking the first time the shared currency broke below $1.3000, a key technical resistance point, in 14 months. Against the Swiss franc, the euro fell to 1.20450 on the EBS platform, its lowest since November 2012.

"It was a surprise to the market," said Chris Gaffney, senior market strategist at EverBank Wealth Management in St. Louis. "It increases the possibilities for further quantitative easing out of the ECB."

There had been increasing speculation that the ECB could embark on an asset purchase program, or quantitative easing, after Draghi hinted at such a policy shift at a central bank symposium in Jackson Hole, Wyoming on Aug. 22.

The U.S. dollar rose broadly against major currencies, despite weaker-than-expected U.S. jobs data.

The ADP National Employment Report of private-sector employment showed U.S. companies hired 204,000 workers in August, below economists' expectations for an increase of 220,000, according to a Reuters poll.

The Labor Department, meanwhile, said initial claims for state unemployment benefits increased 4,000 to a seasonally adjusted 302,000 for the week ended Aug. 30, slightly above expectations but remaining at levels consistent with tightening labor market conditions.

Analysts said Friday's U.S. nonfarm payrolls figure, if strong, could push forward expectations for the first Federal Reserve interest rate hike to the first quarter of 2015. Economists expect U.S. employers to have added a strong 225,000 jobs in August, according to a Reuters poll of economists.

"If we do get a stronger-than-expected number, it will embolden the market's expectation that the Fed will become more optimistic, and, with that, more hawkish," said Brian Daingerfield, currency strategist at the Royal Bank of Scotland in Stamford, Connecticut.

The euro was last down 1.06 percent against the dollar at $1.3011. The dollar was up 0.22 percent against the Japanese yen at 105.02 yen, and was up 1.02 percent against the Swiss franc at 0.9268 franc.

The U.S. dollar index, which measures the greenback against a basket of six major currencies, was last up 0.65 percent at 83.405. (Reuters)

For more visit: www.businessworld.ie