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Euro slumps on ECB Draghi's comments

Euro slumps on ECB Draghi's comments
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The European Central Bank has said it will monitor what impact the stronger euro is having on the region’s economy to make sure it does not derail the recovery.

After the ECB left its main interest rate at 0.75 percent at the monthly policy meeting, Bank chief Mario Draghi said the euro was actually near its long-term average: “The (euro’s) appreciation is, in a sense, a sign of return of confidence in the euro.”

He added: “The exchange rate is not a policy target, but it is important for growth and price stability and we will certainly want to see whether the appreciation – if sustained – will alter our risk assessment as far as price stability is concerned.”

A stronger euro makes the bloc’s exports less competitive. The euro hit a 15-month peak of $1.3711 on February 1.

Economists say the problem for the ECB is that it is not really equipped to fight a currency war in which other countries are devaluing, to boost exports and so grow their economies.

After Draghi spoke the euro fell to its lowest level in a week against the dollar – under $1.34 – and sank against the yen.

That was a reaction to the ECB’s views on the state of the eurozone economy.

Draghi spoke of negative risks as he said economic weakness was “expected to prevail in the early part of 2013” but later in the year, activity should gradually recover.

On that basis, economists continue to believe the ECB is not likely to change interest rates until at least July next year.