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Daily currency report

Overview

The euro took its biggest tumble in months after European Central Bank President Mario Draghi exercised his influence over financial markets once again. Speaking after the ECB decided to hold interest rates steady this month, Draghi appeared to warn investors the ECB may respond to the euro’s sudden rise should it complicate the region’s economic growth and inflation prospects.

The euro plunged to two-week lows against the US dollar, reflecting worries the ECB may still cut interest rates at some point with data expected to show the eurozone’s economic recession deepening.

Sterling traders will be looking ahead to the quarterly inflation report from the Bank of England for new direction on the British economy’s outlook. The pound rallied after the central bank made no changes to its monetary policy while future BoE Governor Mark Carney gave investors assurances that he was not looking to take policy into uncharted waters under his command.

Sterling

Sterling rallied after incoming Bank of England Governor Mark Carney gave investors little reason to fear a major shake-up at the central bank when he takes charge in July. Sterling had come under further pressure in recent sessions on the belief that Carney would suggest a new framework was needed for monetary policy targeting and there was room for additional quantitative easing. Responding to questions in Parliament just as the BoE announced no changes in its latest monetary policy announcement, Carney said that he had no intention of forcing British monetary controls into uncharted waters. Carney’s soothing remarks came as European Central Bank President Mario Draghi gave investors the impression that he may react to the euro’s sudden rise in currency markets.

Euro

The euro suffered its biggest fall in months, sinking to a two-week low against the US dollar after Mario Draghi responded to concerns about the euro’s strength with hints of possible action. Speaking after the ECB announced no changes to its monetary policy through February, Draghi said the ECB remains independent on the issue of exchange rates. However, the ECB chief warned that if a sustained rise in the euro put downward pressure on the eurozone’s economic growth and inflation, then this may alter the ECB’s FX risk assessment. Draghi also repeatedly talked about sustaining accommodative monetary policy, feeding speculation the ECB could still cut interest rates in the months ahead.

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