Euro Weakens On Negative Comments From ECB's Draghi

The single currency fell against the dollar and yen on Wednesday after European Central Bank President Mario Draghi said there are downside risks of eurozone growth and monetary policy will stay accommodative for the foreseeable future.

The single currency edged lower from the Asian top at 1.3087 and then fell sharply from 1.3083 to 1.3014 in yesterday's European morning due to the comments from the ECB's Draghi and 'euro-negative' news in Italy. Later, although the euro staged a recovery after the release of worse-than-expected U.S. final GDP (1.8% versus forecast of 2.4%), active cross selling of euro versus yen pressured the pair to a 3-week low of 1.2985 in New York afternoon before stabilising.

The ECB's President Draghi said 'its scenario sees gradual recovery taking place by year-end; policy will stay accommodative for the foreseeable future; exit from exceptional monetary policy remains distant; OMT ready to be achieved at any time there is need for this accompanied by conditionality; risks to growth are still on the downside, sees gradual but fragile recovery; Italian treasury planning statement on report of losses on derivatives.'

The Financial Times and La Repubblica reported that Italy faced billions in potential losses on derivatives contracts. However, Italian economy minister Saccomanni said 'there is a big misunderstanding, there is no loss, there has been no damage to public account.'

Versus the Japanese yen, although the greenback rose above Tuesday's Asian top at 98.07 to 98.24 in Australia due to the initial rise in Nikkei-225 index, cross buying of yen versus other currencies pressured the pair to a low of 97.33 in European morning yesterday before staging a recovery to 97.89 in New York morning, however, worse-than-expected U.S. final GDP sent price below 97.33 to 97.24 before staging a strong rebound in U.S. afternoon.

Despite cable's brief rise to 1.5442 in European morning, the British pound fell in tandem with the euro to 1.5354 but then staged a recovery to 1.5397 after the release of worse-than-expected U.S. final GDP. However, renewed selling interest pressured the pair below Monday's low at 1.5343 to a 3-week bottom at 1.5315 in New York afternoon.

In other news, the BOE's Miles said ' UK economy recovery remains pretty weak, more asset buys might be helpful.' German Finance Minister Schaeuble said 'budget shows Germany emerging well from crisis; The 2014 German budget is a "structurally balanced", budget balanced due to spending restraint; European governments have said there will not be another debt haircut for Greece like the one in late 2011.' The ECB's Noyer said 'accommodative monetary policy will remain so as long as necessary, should help underpin recovery; our standard and non-standard monetary policies have prevented materialization of any deflation risk; ECB will monitor economic developments and stand ready to act if necessary; ECB will monitor economic developments and stand ready to act if necessary.'

Data to be released on Thursday:

New Zealand, trade balance, import, export, ANZ Business Confidence, Japan all industry index, France consumer confidence, German import price index, unemployment rate, U.K. current account, GDP, EU economic sentiment, business climate, consumer confidence, U.S. personal income, personal spending, PCE index, PCE core, jobless claims, pending home sales.