* ECB's Draghi says monetary policy to remain accommodative
* US-Germany bond spreads point to more dollar gains
* Strong US economic data also lifts dollar
By Gertrude Chavez-Dreyfuss
NEW YORK, June 26 The euro declined to a
three-week low against the U.S. dollar and fell against Japan's
yen on Wednesday after European Central Bank President Mario
Draghi highlighted risks to euro zone growth and said monetary
policy will stay accommodative.
The euro briefly pared losses against the dollar after final
data showed U.S. gross domestic product growth was more tepid
than previously estimated in the first quarter. U.S. growth was
held back by moderate consumer spending, weak business
investment, and declining exports.
The ECB remained the key focus. Draghi said on Wednesday the
economic recovery in the euro zone would be gradual but fragile,
in line with his comment, a repeat of one made the previous day,
that the ECB was nowhere near exiting its accommodative monetary
"A recession-hit economy, rising borrowing rates for
debt-struggling nations and the ECB's accommodative and
ready-to-act-anew stance are all conspiring to pressure the
euro," said Joe Manimbo, senior market analyst at Western Union
Business Solutions in Washington.
Dovish easing sentiment surrounding the ECB contrasts with
the expectations for the Federal Reserve to slow its bond
purchases sooner than other central banks.
Spreads between 10-year U.S. Treasuries and
German bund yields have widened to their highest
since April 2010 in favor of dollar assets.
In late afternoon trading, the euro was down 0.6
percent at $1.3008, not far from $1.2983, its lowest since June
3. An options barrier was defended at $1.30 in the New York time
zone but selling pressure ultimately outweighed support at that
Technical analysts said a daily close below its 200-day
simple moving average at $1.3072 could trigger more falls toward
and below $1.30.
"A large part of the sell-off in euro/dollar from its high
of $1.34 on June 19th to its low of $1.2985 today was driven by
re-pricing of FOMC expectations," said Kathy Lien, managing
director at BK Asset Management.
Euro volume against the dollar was at $6.3 billion in
afternoon trading, based on Reuters Dealing data.
Against the yen, the euro was last down 0.6 percent at
127.18 yen, after earlier hitting a one-week low at
Analysts pointed to a recent sharp rise in short-term euro
inter-bank lending rates, which could drive the ECB to respond
by easing monetary conditions, which in turn could weigh on the
euro. The three-month Euribor rate, traditionally
the main gauge of unsecured bank-to-bank lending, had spiked
from 0.198 percent on May 21 to 0.225 percent on June 25.
Meanwhile, the unexpected drop in the final reading of U.S.
GDP caused some volatility. Gross domestic product expanded at a
1.8 percent annual rate, the Commerce Department said in its
final estimate. Output was previously reported to have risen at
a 2.4 percent pace.
"While GDP numbers are very backward-looking, this revision
is large enough to raise concerns that Bernanke is looking to
reduce asset purchases prematurely," said BK's Lien.
A gauge of the dollar against a basket of currencies rose to
a three-week high of 83.003, buoyed mainly by solid gains
against the euro, and was last at 82.948, up 0.4 percent. It was
the sixth straight day of gains for the dollar index.
The dollar also climbed to its highest since June 5 against
the Swiss franc and it last changed hands at 0.9428
franc, up 0.5 percent.
But the greenback was flat against the yen at 97.70 yen
. It was much lower earlier in the session as worries
about a cash crunch in China supported safe-haven flows into the
The Australian dollar rose 0.2 percent to US$0.9276
after Australia's former leader Kevin Rudd toppled Julia Gillard
to return as prime minister on Wednesday. He reclaimed the job
on his third attempt and with elections less than three months