Thursday, 2 August 2012

Euro drops versus dollar after ECB Draghi's comments

Police display counterfeit money during a news conference in Lima, July 18, 2012. REUTERS/Mariana Bazo
NEW YORK | Thu Aug 2, 2012 9:54am EDT
(Reuters) - The euro fell against the dollar in volatile trade on Thursday after European Central Bank President Mario Draghi disappointed investors hoping for quick action to contain the euro zone debt crisis.
Expectations going into the meeting were high after Draghi fueled speculation of further bank purchases of Italian and Spanish bonds when he said last week he would do "whatever it takes to preserve the euro."
But Draghi sent no signal of near-term action. Instead, he said the ECB will draw up plans in the coming weeks to make outright purchases to stabilize stressed euro zone borrowing costs.
"He's talking about potential measures but the market wants action now," said Brian Kim, currency strategist at RBS securities in Stamford, Connecticut:
The euro fell as low as $1.2173 on Reuters data, a one-week low and more than 2 cents below an earlier four-week high above $1.2404. It was last at $1.2205, down 0.2 percent on the day.
Against the yen, the euro slid as low as 95.22 and last traded down 0.4 percent at 95.50 yen.
Draghi made the comments in a press conference following the ECB's decision to keep interest rates at 0.75 percent.
Avery Shenfeld, chief economist at CIBC World Economics in Toronto, said markets won't like many details revealed by Draghi at the press conference.
He said Draghi seemed to imply that before the ECB did any buying in the secondary market, a country would have to have approached the euro zone bailout funds for funding and met strict conditions imposed by those institutions.
"He also conceded that the Bundesbank isn't really on board yet," Shenfeld said. "Our confidence that this will be ready by September is waning on these further details."
Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York, said further losses in the euro should be limited.
"Even though some people are disappointed, I think what he said was pretty significant. He seems to have laid the groundwork for substantial policy action," he said.
"It wouldn't surprise me if we get a risk rally in the days ahead, because Draghi has not altogether dashed hopes that there's a big bazooka on the sidelines."
(Additional reporting by Gertrude Chavez-DreyfussSteven C. Johnson and Nick Olivari; Editing by Dave Zimmerman)