* Euro sinks vs dollar and yen as Draghi comments taken as
* Draghi says risks to euro zone to the downside
* ECB leaves benchmark interest rate unchanged
NEW YORK, Feb 7 The euro plunged against the
dollar and yen on Thursday after ECB President Mario Draghi said
the euro exchange rate was important to growth and price
stability which investors took as a sign the bank is concerned
with the single currency's recent advance.
The euro had earlier maintained gains after the European
Central Bank held its main interest rate at a record low of 0.75
percent on Thursday. The rate announcement was a reiteration of
the bank's policy to see whether an economic recovery sets in
later this year or is derailed by the euro's rise.
But as Draghi began to speak at a press conference after the
official rate announcement, the euro surrendered gains as
investors heard his view that while economic activity in the
euro area should gradually recover in 2013, there are more
negative risks than positive ones.
The euro then fell further when Draghi said "the exchange
rate is not a policy target, but it is important for growth and
price stability and we certainly want to see whether the
appreciation is sustained."
"Clearly he does not want to see the euro go much higher,"
said Boris Schlossberg, managing director at BK Asset Management
in New York. "There is massive pressure from the French. He is
signalling displeasure that it ran up so much."
The euro was last at $1.3398, down 0.9 percent on the day
, with the session low at $1.3369, the lowest since Jan.
25. At the low it was the biggest one-day percentage drop since
The euro was down 1.2 percent against the yen at 125.08 yen
, with the session low at 124.48 yen.
Before Thursday's declines the euro had risen more than 2
percent against the greenback so far this year and over 10
percent versus the yen.
The appreciation of the euro on Feb. 1 to its highest since
against the dollar November 2011 had prompted French President
Francois Hollande to call for an exchange rate policy to protect
the currency from "irrational movements".
But while the French have raised concerns a strong euro
could derail exports and threaten a nascent euro zone recovery,
the Germans have said the shared currency is not overvalued.
The euro zone economy contracted in the second and third
quarters of last year, meeting the technical definition of
recession, and the downturn is expected to have deepened in the
"The economic weakness in the euro area is expected to
prevail in the early part of 2013," Draghi told the news
Some analysts cautioned that the sell-off in the euro may be
too far, too fast and only short-term.
Christopher Vecchio, currency analyst at DailyFX in New
York, noted Draghi also said the high euro is a sign of
confidence in the region.
"Any further euro losses should be limited beyond the
initial knee jerk that we've seen thus far today," said Vecchio.
A Spanish bond auction on Thursday drew healthy demand but a
slight rise in yields on the short-dated paper limited gains in
The dollar was down 0.3 percent against the yen at 93.36 yen
, but still within reach of the peak touched on Wednesday,
the highest since May 2010.
Sterling rose on Thursday after incoming Bank of England
governor Mark Carney showed little bias towards immediate looser
monetary policy, wrong-footing many investors who had expected
him to be more dovish.
The pound was last up 0.2 percent at $1.5690 as
investors who had bet on hints of more aggressive easing
measures from Carney, who takes the helm in July, covered short
The Bank of England said it was keeping interest rates on
hold at 0.5 percent and the quantitative easing total unchanged
at 375 billion pounds.
Traders cited buying by an Asian central bank before
sterling ran into offers around $1.5775-90.