FOREX-Euro slides vs dollar as ECB seen easing further; yen plunges

Thu Apr 4, 2013 9:36am EDT

Related Topics

* ECB's Draghi strikes dovish tone, hurting euro
    * ECB and BoE keep rates on hold as expected
    * Yen sinks on BoJ easing moves

    By Gertrude Chavez-Dreyfuss
    NEW YORK, April 4 (Reuters) - The euro dropped to its lowest
in more than four months against the dollar on Thursday after
European Central Bank President Mario Draghi highlighted the
downside risks to the euro zone economy, suggesting the bank
could further slash interest rates.
    The yen, meanwhile, fell sharply after the Bank of Japan
announced aggressive measures to ease monetary policy, including
a plan to double its holdings of bonds and stocks in two years.
    The ECB on Thursday kept interest rates on hold as expected,
but Draghi in his post-decision remarks was decisively dovish.
He said the ECB's monetary policy would remain accommodative for
as long as needed, citing weakness in the euro zone economy.
 
    At the same time, he stressed that inflation is not a
concern for now and is actually edging lower -- well below two
percent, effectively nullifying the need to tighten policy.
    "Draghi's dovish bias is hurting the euro," said Vassili
Serebriakov, currency strategist at BNP Paribas in New York.
"Clearly, the ECB has recognized the euro zone's weak growth
momentum. To me, his comments suggest that the ECB is moving
toward further easing."
    The euro fell as low as $1.2745, the lowest since
around mid-November. It was last at $1.2784, down 0.5 percent on
the day.
    The dollar, on the other hand, rose as high as 95.67 yen
, climbing closer to a 3-1/2 year peak of 96.71 set on
March 12. It was last trading at 95.57 yen, up 2.7 percent on
the day.
    The euro also gained strongly against the Japanese currency,
and was last trading up 2.3 percent at 122.22 yen.
    Traders said the yen's falls were all the greater because
before the announcement the market had prepared for the BoJ to
deliver less than expected, as it had done in the past.
    "The BOJ has set in play a very aggressive expansion of
monetary policy and it's very likely dollar/yen will continue to
rise," said Lee Hardman, currency economist at BTMU, adding the
dollar could hit 100 yen in the next three to six months.
    The BoJ shocked markets in what was seen as a radical
overhaul of policymaking, shifting the policy target to the
monetary base from the overnight call rate and ditching its
previous stance of shunning long-term bonds. 
    The yen extended losses as BoJ governor Haruhiko Kuroda said
he would not hesitate to adjust policy further. 
    Market players said Japanese institutional investors were
also likely to increase overseas investments, which could
trigger "the next leg" in yen weakness.
    The BoJ's new plan means it will buy about 7 trillion yen
($73 billion) of bonds per month, equivalent to about 1.4
percent of GDP. By comparison, the U.S. Federal Reserve buys $85
billion of bonds - about 0.6 percent the size of the economy.
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