Euro steadies after slumping on Draghi comments

The euro struggled to gain traction on Friday after dovish comments from European Central Bank President Mario Draghi the previous day sent the currency tumbling from a two – 1/2 year high.

The single currency held steady at 1.3839 dollars, having pulled back from a peak of 1.3995 dollars set on Thursday on trading platform EBS, the highest since October 2011.

Draghi said the euro’s strength was “a serious concern” and that the ECB bank might act to stem falling inflation at its June meeting, signalling possible easing.

Before Draghi’s comments, the single currency had surged after the ECB on Thursday kept monetary policy unchanged as expected.

Although erratic, traders say the ECB, which has focused on the euro’s strength in the past few weeks, gets uneasy when the euro rises towards 1.40 dollars.

A media poll on Wednesday showed most economists expect ECB action if the euro hits 1.42 dollars.

“The focus going forward is what the ECB will actually do in June.

“A rate cut and a negative deposit rate are the expected course of action,” said Shinichiro Kadota, chief Japan FX strategist at Barclays in Tokyo.

“But rates are low at 0.25 per cent that even if the ECB does lower it the impact will be limited, and this will not be effective in curbing euro strength,” Kadota said.

The dollar was little changed at 101.70 yen, still not very far from a three-week low of 101.43 yen set on Wednesday.

For the week, the greenback is down 0.5 per cent against the yen, weighed down by persistently dovish comments from the Federal Reserve and low U.S. Treasury yields.

“Are the dollar/yen going to head higher or lower, I think downside risks are increasing,” said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

Simmering tensions in the Ukraine have also supported the safe-haven yen currency and the market kept an eye on a May 11 separatist referendum.

The Australian dollar eased 0.1 per cent to 0.9364 dollars, edging away from a three-week high of 0.9395 dollars hit on Thursday.

It gained a lift from upbeat Australian and Chinese economic data. (Reuters/NAN)