Market Review - 05/09/2013 22:23GMT

Euro tanks to a fresh 7-week low on ECB Draghi's dovish comments

The single currency dropped sharply to a fresh 7-week low on Thursday as the European Central Bank President Draghi said the bank will keep its present rates or lower the levels for extended period.

Earlier in Asia, despite euro's intra-day fall from Wednesday's top at 1.3218 to 1.3164, cross buying of euro versus yen lifted the pair above 1.3218 to 1.3223 in New York morning, however, the single currency then fell sharply when ECB President Draghi said 'rates at present or lower levels for extended period.' Price eventually hit a 7-week low at 1.3110 in New York morning before stabilising.

ECB's Draghi said in the press conference after the central bank kept interest rate at 0.5% that 'underlying price pressures in Eurozone expected to remain subdued; recent confidence indicators confirm expectation of gradual improvement in economy; ECB monetary policy stance is geared toward maintaining degree of monetary accommodation; monetary policy stance will remain accommodative for as long as necessary; governing council expects ECB interest rates to remain at present or lower levels for extended period; inflation outlook unchanged in medium term; repayments of long-term loans reflect improvement in financial market conditions; expect gradual recovery in euro zone.'

Versus the Japanese yen, although the greenback rose briefly to 99.98 at Asian midday, cross buying of yen versus euro pressured the pair to 99.57 before rising to 100.12 in European morning. Later, despite dollar's retreat to 99.66 in New York morning, release of better-than-expected U.S. ISM non-manufacturing PMI and factory orders (58.6 and -2.4%, versus the forecast of 55.2 and -3.3%) pushed the pair higher to a fresh 6-week top at 100.20 in New York afternoon.

Although the British pound retreated from Wednesday's top at 1.5648 to 1.5591 in European morning, the pair pierced through 1.5648 to a 2-week top at 1.5667 after the Bank of England announced to keep interest rate and asset purchases unchanged at 0.5% and 375 billion sterling as expected. However, cable fell sharply in tandem with euro in New York morning due to the steep fall in eur/usd and eventually hit session low at 1.5573 before recovering in U.S. afternoon.

In other news, BOJ kept monetary policy steady by unanimous vote, pledged to increase monetary base at annual pace of 60-70 trillion yen and revised up economic assessment in September. Fed's Kocherlakota said 'low rates at which U.S. can borrow shows confidence in ability of government to resolve fiscal issues; expect unemployment to remain well above 5.2%-6% for a number of years; expect inflation, as measured by %, to stay well below 2% for some time; Fed should communicate more effectively; markets reacted to tapering talks in a way I did not expect; a reduction in Fed's bond buying may not mean as much as people might think.''

Data to be released on Friday:

Japan leading indicator, Germany trade balance, current account, import export, industrial production, France trade balance, consumer confidence, Swiss CPI, industrial production, U.K. industrial production, manufacturing production, trade balance, U.S. non-farm payrolls, unemployment rate, average hourly earning, Canada unemployment rate, PMI.