Euro Weakens as Draghi Said ECB Open to Negative Deposit Rate

By Lucy Meakin 

The euro fell for the first time in five days against the dollar after European Central Bank President Mario Draghi said policy makers had an open mind on a negative deposit rate.

The single currency dropped against all except one of its 16 major counterparts as the ECB lowered its main refinancing rate and its marginal deposit rate at a policy meeting. The yen fell for the first time in six days against the dollar after a U.S. report showed the number of Americans filing claims for jobless benefits unexpectedly dropped to a five-year low, damping demand for the safety of Japan’s currency. “The euro was quite upbeat until Draghi made his comment that the ECB would be able to cope with any consequences of negative deposit rates,” said Daragh Maher, a currency strategist at HSBC Holdings Plc in London. “Previously, the language of the ECB on this front has characterized it as uncharted waters. Today, it seems the ECB is more open to the idea. The euro was clearly spooked by the mere concept of negative deposit rates in the euro zone.”

The euro slid 0.7 percent to $1.3085 at 2:25 p.m. London time after strengthening 1.3 percent during the previous four days. The single currency dropped 0.3 percent to 127.95 yen. The yen fell 0.4 percent to 97.82 per dollar after weakening as much as 1 percent, the most since April 19.

The ECB lowered its benchmark rate by a quarter percentage point to 0.5 percent as predicted by 45 of 70 economists in a Bloomberg News survey. The central bank reduced its marginal lending rate, which banks use for overnight credit, to 1 percent from 1.5 percent.

Further Easing

Draghi announced a range of measures to boost the flow of credit and left the door open to further monetary easing after today’s interest-rate cuts.

“Our monetary policy will remain accommodative for as long as needed” and officials “will monitor very closely all incoming information” in the months ahead, Draghi said at a press conference in Bratislava, Slovakia, after the ECB meeting. He said the ECB will continue to lend banks as much money as they need at least until mid-2014.

The yen dropped the most in almost two weeks against the dollar after the U.S. Labor Department said applications for unemployment insurance payments fell by 18,000 to 324,000 in the week ended April 27, the fewest since January 2008. Economists forecast 345,000 claims, according to the median estimate in a Bloomberg News survey.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net

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