The euro plunged following the ECB’s monetary policy announcement in which Draghi said that governments must request bailouts before the ECB can intervene in bond markets to help drive down their borrowing rates. Spain’s long-term bond yields, the price it must pay to borrow, immediately soared in response with some investors now certain that Madrid will seek an emergency rescue loan. Global stocks fell and market sentiment turned sour, reflecting disappointment and anxiety amongst traders who had expected the ECB to put new crisis-fighting blocks in place after Draghi assured investors that the ECB will do everything possible to end Europe’s fiscal nightmare. The Bank of England may also have been left disheartened after it decided to make no changes to UK monetary policy perhaps hoping that more ECB stimulus would help give the British economy a much needed boost.

Sterling

Sterling fell sharply against the US dollar but rose against the euro following a disappointing announcement from the European Central Bank which has raised more question marks about the euro zone crisis. Sterling may find itself struggling again, especially against its safer rivals like the US dollar if data on Britain’s services sector reinforces fears about the country’s gloomy economic outlook.

US dollar

Market sentiment darkened quickly after the European Central Bank failed to put any substantial stops in place to help end the sovereign debt crisis, pushing risk averse traders back in the direction of the safe haven US dollar and Japanese yen. The greenback soared against the euro and other more risky currencies following the ECB’s policy announcement and may extend gains. However, US unemployment data could shackle the US currency if investors fret that the Federal Reserve will have to introduce a new round of asset purchases sooner rather than later in order to speed up a recovery in the labour market.

Euro

The euro plunged by almost two per cent against the US dollar after the European Central Bank said that it cannot save Spain from financial meltdown, but can support its recovery once it has applied for a bailout. President Mario Draghi insisted that the ECB will do everything possible to preserve the euro, helping the single currency to recover from two-year and three-and-a-half-year lows against the US dollar and British pound respectively.

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