* ECB holds rates at 0.75 percent, cuts inflation, growth
* ECB President Draghi says wide discussion on rates
* Political tensions on Italy grows
By Wanfeng Zhou
NEW YORK, Dec 6 The euro was headed for its
sharpest drop against the dollar in a month on Thursday after
comments from the European Central Bank chief and a downgrade to
the region's growth and inflation forecasts boosted expectations
of an interest rate cut.
Political chaos in Italy added to losses in the euro.
Italian Prime Minister Mario Monti on Thursday faced a revolt by
Silvio Berlusconi's PDL party, which ratcheted up tension ahead
of an election early next year by walking out of a Senate
ECB President Mario Draghi, speaking at a news conference
after the bank's decision to keep its main interest rate at 0.75
percent, said there was a wide discussion on interest rates, but
the consensus was to leave the rates unchanged.
"That comment suggests that there was a body of support for
easing monetary policy, and so the market is looking to the next
meeting as perhaps a time to seek a cut," said Andrew Wilkinson,
chief economic strategist at Miller Tabak & Co. LLC. in New
The ECB sharply lowered its growth and inflation forecast
for 2013 and said that risks to growth remain on the downside.
The bank forecast gross domestic product in a range of
falling by 0.9 percent to growing by just 0.3 percent next year,
suggesting contraction is far more likely than not. It predicted
inflation at 1.1 percent to 2.1 percent next year.
"The combination of the ECB's cooler growth and inflation
forecasts opened the door to a rate cut in the months ahead,"
said Joe Manimbo, senior market analyst at Western Union
Business Solutions in Washington.
Draghi also said the policymakers discussed setting a
negative rate on the ECB's deposit facility in an attempt to
encourage banks not to hoard cash at the ECB but lend it into
the real economy instead.
The euro fell as low as $1.2976 on Reuters data and
was last down 0.6 percent to $1.2984. At current levels, it was
on track for the biggest daily percentage fall since Nov. 2.
Against the yen, the euro lost 0.8 percent to 106.94 yen
Italian and Spanish government bond yields rose on tensions
in Italy. A disappointing Spanish bond sale on Wednesday also
weighed as it revived talk of an official bailout request from
the euro zone's fourth-largest economy.
Draghi "completely ignored any questions regarding Italy,
which is starting to worry the market," said Boris Schlossberg
managing director of FX Strategy at BK Asset Management in New
"Some analysts are predicting Italy could be contracting by
as much as negative 3 percent next year. If that's the case,
then they could become another financing crisis for the euro
The dollar slipped 0.2 percent to 82.34 yen, still
not far from an eight-month high of 82.82 yen hit on Nov. 22 on
Traders expect the yen to remain under pressure on
expectations of further monetary easing by the Bank of Japan
following an election on Dec. 16.
The Australian dollar rose 0.4 percent to a 2-1/2
month high of $1.0505, after surprisingly strong Australian jobs
data prompted investors to reduce expectations of further policy