Euro continues fall on ECB president's dovish tone

The euro sank to its lowest level against the dollar in four weeks on Thursday, pushed lower after European Central Bank President Mario Draghi signalled that new stimulus measures could come as early as December. In addition to tumbling 2 percent against the dollar, the euro fell 1.9 percent versus sterling after Draghi raised the possibility of further easing measures to counter weak inflation in the euro zone following the ECB's meeting in Malta.
The euro on Thursday also posted its largest one-day percentage drop against the dollar in nine months, and its worst one-day percentage loss against sterling since May. The bank held rates steady as expected at the meeting, after having cut rates to rock-bottom levels more than a year ago. The ECB has repeatedly said they have hit "the lower bound," a point now in contention.
Traders saw Draghi's remarks as a sign of what the ECB has in store for the future and kick-started a sell-off of the euro almost immediately, lasting well into the afternoon. "I think Draghi has forward announced action in December," said Richard Benson, co-head of portfolio investments at Millennium Global in London, managing $14 billion in assets. "Negative rates are explicitly back on the table." The US stock market also ate up Draghi's comments, with the S&P 500 and the Dow rallying to nine-week highs and now poised for their best month since October 2011.
In late trading, the euro zone's single currency traded at $1.1111, down 2 percent. Earlier it fell to a four-week low of $1.1108. Against the yen, the euro slid to its lowest since October 2 at 134.07 yen. It last traded at 134.09, down 1.4 percent, the euro's largest one-day fall since March. Some banks such as Danske Bank and Deustche Bank have started to price in a 10 basis-point cut in the euro zone deposit rate at the meeting in December.
"While the market has now fully priced a 10 basis-point cut by December, there is no reason to think the ECB has to stop there," wrote Deutsche Bank in a note. "Our analysis suggests there is some way to go before the zero lower bound is reached." The dollar rallied sharply on the ECB news, pushing up 1.5 percent against Swiss franc at 0.9713 franc, and rising 0.6 percent against the yen to 120.67 yen. Reuters polling puts the median probability of the ECB extending its trillion-euro program beyond its current end date of September 2016 at 70 percent.