Market Review - 04/07/2013 22:06GMT

Euro tumbles to a fresh 5-week low after Draghi's dovish comments

The single currency fell to a fresh 5-week low of 1.2883 in European afternoon on Thursday after the dovish comments by ECB's President Draghi who said that interest rates will remain at current or even lower levels for an extended period of time and stated that price pressures would remain subdued in the medium-term during the ECB's post-rate decision conference.

ECB's Draghi said, 'see subdued underlying price pressures over medium term; recent confidence indicators show further improvement from low levels; ECB's monetary policy stance will remain accommodative as long as need; will monitor all incoming information; see economy recovery later in the year and 2014; will assess any impact on outlook for price stability; significant improvement in financial markets since last summer should work into real economy; growth risks are on downside; inflation risks are expected to be subject to some volatility; risk to outlook for price developments broadly balanced over medium term; weak loan dynamic reflect primarily current stage of business cycle, heightened credit risk, balance sheet adjustment; expects all interest rates to remain at present on lower levels for extended period; "extended period" is not 6 months, it's an extended period of time; government council has injected downward bias in interest rates for foreseeable future; discussed cut; has extensive discussion about cut; 50 BPS is not the lower bound; mind open on all rates, including negative deposit rate; liquidity will remain ample; our exit is very distant; presence of continuing weakness in real economy, economy still going down but at lower pace; we are not reaching to other central banks' policy decision; we react to changes in the medium term outlook; fx rate is important for prices and growth; exchange rates are not a one-way affair.'

During the day, euro traded with a soft undertone in Asia and dropped from 1.3023 to 1.2984 in European morning before staging a rebound to 1.3017 on active buying in euro versus sterling (eur/gbp rose to a fresh 2-1/2 month peak at 0.8634) ahead of ECB's rate decision, however, dovish comments from Draghi pressured price sharply lower in European afternoon and eur/usd tumbled below Wednesday's support at 1.2923 to a fresh 5-week low of 1.2883 before stabilising in thin market condition due to U.S. Independence Day, last seen around 1.2920 near European closing.

On the other hand, despite cable's brief recovery from 1.5225 to 1.5266 in European morning, the British pound also tumbled to a fresh 5-week low of 1.5060 verses the U.S. dollar in European afternoon after Bank of England (BoE) introduced no changes in monetary policy but struck a dovish tone in its statement, concerning interest rates. The central bank kept interest rate and asset purchase target at 0.50% and 375 billion pounds respectively at its meeting on Thursday and in the statement that economic data over the past few months was consistent with economic recovery, set out by BoE in its May inflation report, but yet, confirmed that a significant increase in interest rates would weigh on the growth outlook.

Although U.S. dollar weakened against the Japanese yen in Asia and dropped to 99.49, dollar's firmness versus other usd/majors in Europe lifted price and usd/jpy pair later climbed back above 100.00 level to a session high of 100.16 in European afternoon.

Data to be released on Friday:

Japan leading indicator, France trade balance, Swiss CPI, Germany factory orders, Canada unemployment rate, net change in unemployment and Ivey PMI, U.S. non-farm payroll, private payroll, unemployment rate, average hourly earning on Friday.