* Euro sinks, ECB's Draghi comments seen as cautious
* Euro zone faces economic risks from high currency-Draghi
* ECB leaves benchmark interest rate unchanged
* PIMCO sees euro in $1.30-$1.40 range next 3-6 months
By Julie Haviv
NEW YORK, Feb 7 The euro slid against the dollar
and yen on Thursday after European Central Bank President Mario
Draghi voiced concerns about the currency's recent rise and
cited economic risks, raising the odds of a rate cut down the
The euro zone currency slipped against the dollar and yen
for a second straight session as Draghi voiced concerns about
the impact of the currency's exchange rate on the economy at a
news conference after the ECB held its benchmark interest rate
steady at 0.75 percent.
He said that, while economic activity in the euro area
should recover gradually in 2013, there are more negative risks
than positive ones. Draghi also said the euro's exchange rate
was near its long-term average, going further than many analysts
"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," Draghi said.
"Draghi's comments were neutral to modestly dovish, which
means a rate cut is still on the table," said Ben Emons, senior
vice president/global portfolio manager, at Newport Beach,
California-based PIMCO, which had $2 trillion in assets as of
"If the euro puts too much pressure on CPI (consumer price
index), the ECB may have look at more liquidity operations or a
potential rate cut to offset the downward pressure on prices,"
The euro last traded at $1.3398, down 0.9 percent on
the day, after earlier sliding to a trough of $1.3369, the
lowest since Jan. 25. At the session low, it was the biggest
one-day percentage drop since June.
"Interest rate differentials are the main driver of the
euro's move today," Emons added. "The ECB is not in a position
to change policy right now due to fragmentation, with financial
market conditions looking very good, but credit conditions in
some European economies not."
Emons, who oversees $70 billion in global assets, said the
euro will likely remained contained to a range of $1.30 to $1.40
for the next three to six months.
"I am not overly bullish on the euro, but I also do not see
much scope for a significant change in either direction," he
Against the yen, the euro last traded at 125.38
yen, down 1 percent, but above the session low of 124.48 yen.
Despite Thursday's declines, the euro is up about 1.6
against the greenback so far this year and around 9.6 percent
versus the yen.
The Feb. 1 appreciation of the euro to its highest against
the dollar since November 2011 prompted French President
Francois Hollande to recently call for an exchange rate policy
to protect the currency from "irrational movements."
A persistently strong euro could derail exports and threaten
the euro zone's nascent economic recovery. German officials have
said the shared currency is not over-valued.
But some analysts cautioned that the selloff in the euro
might 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 euro.
While the yen was up against the dollar and euro, investors
believe its trajectory remains downward on forecasts the next
leader of the Bank of Japan will usher in more forceful action.
The dollar last traded at 93.58 yen, down 0.1 percent
on the day, according to Reuters data. It reached 94.06 on
Wednesday, the highest since May 2010.
"The yen has some scope to depreciate further, perhaps to
95-98," said PIMCO's Emons.
"I do not see 100 yen, but a lot will hinge on who the next
Bank of Japan governor is and whether he is going to signal more
aggressive monetary policy action," he said.
Elsewhere, the Bank of England said it was keeping interest
rates on hold at 0.5 percent and its quantitative easing total
unchanged at 375 billion pounds.
Meanwhile, Ireland clinched a long-awaited deal to ease the
burden of its bank debts, sending its borrowing costs falling to
pre-crisis levels and bolstering its chances of ending its
reliance on EU-IMF loans this year.
The yield on Irish benchmark 2020 bonds fell as
low as 3.955 percent, the lowest seen in an equivalent Irish
benchmark bond since early 2007, before the subprime crisis
started, according to Reuters data.