European Central Bank President Mario Draghi suggested yesterday that the euro is too strong, and the exchange rate should fall in the future. Such comments led to the decline of the shared 18-nation currency yesterday, and the drop was extended today.
Draghi explained that the exchange rate is becoming “increasingly relevant in our assessment of price stability” as it threatens inflation. He also said that the forward guidance “creates a de facto loosening of policy stance, as real interest rates are set to fall over the projection horizon” and added:
At the same time, the real interest-rate spread between the euro area and the rest of the world will probably fall, thus putting downward pressure on the exchange rate, everything else being equal.
Such comments were, obviously, not helpful to the euro. The currency was also under pressure from the general market sentiment that was quite downbeat and made traders avoid risk.
EUR/USD declined from 1.3867 to 1.3854 as of 6:22 GMT today after reaching the strongest level since October 2011 yesterday. EUR/JPY dropped from 141.22 to 140.72 and EUR/GBP retreated from 0.8341 to 0.8337.
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