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    European Session – Euro sub-1.09 as Draghi hints at more ECB stimulus

    The euro was the main focus of the currency markets today due to the European Central Bank policy meeting. As expected the ECB kept interest rates on hold but the highlight of the day was ECB President Mario Draghi’s press conference.

    The benchmark refinancing rate was left at 0.05% while the marginal lending facility was unchanged at 0.3%. The overnight deposit rate remains at minus 0.3%.

    The euro moved up marginally on the announcement but then fell drastically as ECB President Mario Draghi began talking at the press conference. He used dovish language and hinted at more stimulus measures to come as early as March.

    Draghi basically said that Eurozone inflation expectations are at a one year low and inflation rates are expected to remain low for some time as falling oil prices look set to suppress inflation. Based on this, the ECB’s target rate will not be met and the Bank’s policy makers will likely review their policy stance in March.

    The euro plunged against the dollar to lose the $1.09 handle and dropped as low as $1.0777. The euro also fell against the pound and against the yen, to breach 77 pence and 127 yen. European equities rose, while many European bond yields were up after Draghi opened the door for more stimulus measures soon.

    Sterling fell below the $1.41 level against the dollar for first time in nearly seven years. Brexit risks and diverging monetary policies between the Federal Reserve and the Bank of England have been in focus lately.

    The dollar traded sideways against the yen below 170 yen for most of the European session but was pushed higher in the US session to rise back above 170.

    Economic data out of the US today consisted of initial jobless claims which increased against expectations. The number of Americans filing for unemployment benefits rose by 10,000 to 293,000 in the week ending January 16. The previous week’s number was revised lower to 283,000 from an initially reported 284,000. The market was not too concerned with today’s number since it is below the 300,000 threshold that shows a healthy US labor market.

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