Friday, May 9, 2014

Euro Dropped As Policy Makers May Ease in June

With the threat of deflation still stalking euro-area economies that are barely out of recession, the European Central Bank president all but committed himself to providing further stimulus at June’s monetary policy meeting.

After keeping rates at record lows yesterday, Draghi told reporters that the 24-member Governing Council is “comfortable with acting next time.” He underscored that position with comments showing a heightened concern that a rising euro will depress prices and derail the recovery. Draghi’s remarks sent the euro and money-market rates plunging as investors bet the ECB will deliver on its long-standing pledge to act if needed.

The comments were reminiscent of his predecessor, Jean-Claude Trichet, who typically signaled rate increases, though not reductions, a month in advance using the phrase “strong vigilance.” The euro weakened from a 2 1/2-year high against the dollar after European Central Bank President Mario Draghi said policy makers were ready to ease monetary policy in June if needed. The euro dropped 0.5% to $1.3840 after appreciating to $1.3993, the strongest level since Oct. 31, 2011. 

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