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Euro trades at 5-week highs on ECB, Draghi remarks

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Euro trades at 5-week highs on ECB, Draghi remarks

Europe’s common currency soared to a five-week high after the European Central Bank decided to keep interest rates at record lows.

ECB President Mario Draghi said the central bank will maintain an accommodative approach to interest rates for an extended period to promote recovery throughout the region. The central bank unexpectedly slashed its lending rate in November to 0.25 percent amid worrying signs inflation was falling further away from its target of 2 percent. While the euro area is likely to face prolonged periods of low inflation, the ECB increased its growth projections from 1 percent to 1.1 percent in 2014.

The common currency strengthened in the European session and carried its momentum forward into North America, despite stronger than forecasted US GDP and employment data. The EURUSD pair increased 75 pips to 1.3665, toppling three resistances in the process.

The greenback was unable to rally despite an upbeat revision of Q3 GDP data, which showed the US economy expanded 3.6 percent annually, compared to an initial estimate of 2.8 percent. Weekly jobless claims unexpectedly fell to two-month lows, shifting the four-week moving average to 322,250. In total, 23,000 fewer Americans applied for unemployment benefits in the last week of November.

Elsewhere, the euro gained 75 pips against the British pound after the Bank of England signaled no intention to raise interest rates. The EURGBP pair broke three intraday resistances on its way to 0.8370. Although the BOE is widely expected to be the first of the major central banks to raise interest rates, the timetable of a rate hike is less certain, as policymakers continue giving off mixed signals. The BOE has already adjusted its forward guidance on the unemployment rate several times, as policymakers continue to weigh Britain’s unexpectedly strong recovery.

Recovery prospects are far less certain in the euro region, which continues to struggle with severe joblessness and stagnation. The Eurozone economy will contract 0.4 percent this year, according to forecasts from the OECD and ECB.

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