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    European Session – Euro tumbles to new 11-year low of 1.0005 on Draghi comments

    Posted on March 5, 2015 by the XM Investment Research Desk at 3:17 pm GMT

    Mario-Draghi_2229367bThe European Central Bank kept interest rates unchanged at record lows today. There was little impact to the euro on the announcement that the benchmark interest rate was left at 0.05% and the deposit rate at minus 0.2%, both as expected.  Investors were more anxious to hear more details about the ECB’s 1.1 trillion-euro bond-buying program. What caused volatility in the markets was the press conference by ECB Chief Mario Draghi. Initially, the euro began to rise as Draghi spoke positively about the Eurozone’s growth projections. According to ECB staff projections, annual real GDP was seen to increase by 1.5% in 2015, 1.9% in 2016 and 2.1% in 2017. The ECB also announced it increased the ELA (emergency liquidity assistance) floor for Greece by 500 million euros today.

    The euro rose to 1.1113 before dropping to a fresh 11 ½ year low of 1.0005 after Draghi spoke of the QE program which will begin on March 9. What sent the euro tumbling were comments that the ECB will buy bonds with negative yields down to the deposit rate (-0.2%). This meant that the ECB may struggle to find enough bonds to buy for the QE program.

    In other news, the Bank of England held interest rates at 0.5% today, as was widely expected. This was the 6th year of record-low interest rates. While there have been signs of a recovery in the UK economy, a revival of wage growth is needed in order to really push the BoE to start raising rates. Sterling traded between 1.5218 and 1.5268 with most of the volatility happening during Draghi’s  presser.

    Meanwhile in the US, the number of Americans filing new claims for unemployment benefits unexpectedly rose last week by 7,000 to 320,000. This was above the 295,000 claims expected. The focus now turns to the more important nonfarm payrolls data tomorrow. The US economy is expected to have added 240,000 jobs in February, fewer than the 257,000 in January. The dollar remained above the key 120.00 yen level today after hitting as high as 120.38.


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