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Draghi's fighting talk helps euro swing back

(Update) FTSE and European share markets struggle as investors digest major central bank decisions.

 
Draghi's fighting talk helps euro swing back

(UPDATE) European Central Bank chief Mario Draghi took the single currency on a roller-coaster ride on Thursday afternoon, first hurtling lower on signs a rate cut could come soon, then whooshing back up on assertive comments about the steadfastness of the 17-nation bloc.

The eurozone bank kept rates on hold, but at his press conference in Frankfurt Draghi said policymakers had an ‘extensive’ discussion on interest rates.

He painted an even bleaker picture of the eurozone economy than previously, suggesting that peripheral weakness was spreading to the core. ‘We see now that this weakness is extending to countries where fragmentation is not an issue,’ he said.

However, Draghi also repeatedly stated that the bailout of Cyprus had not been a ‘template’ for other eurozone casualties. ‘Cyprus is no template. Cyprus is no turning point in eurozone policy,’ he said. The Italian also provided a strong defence of the unity of the eurozone, saying questions about countries being forced out of the union underestimated the strong political will to keep the bloc together.

The euro was trading 0.16% higher mid-afternoon at $1.2870. Carsten Brzeski, economist at ING Bank, said that Draghi had looked 'clueless', having 'sent dovish signals without substantiating possible next steps'.

European equity markets, already lower before Draghi’s comments, fell further. The FTSE 100 was down 0.7% at 6,375, while the pan-European Eurofirst 300 fell 0.5%.

Wall Street moved in the other direction, though, taking its cue from Japan, after new Bank of Japan governor Haruhiko Kuroda announced aggressive stimulus measures (see morning market report below). The Dow rose by 0.5% to 14,623, despite a report showing initial jobless claims rose to 385,000 in the week ending 30 March, up from 357,000 in the prior week.

The yen remained sharply lower, down 2.8%to 95.66.

The Bank of England’s monetary policy committee – which does not hold a press conference after its meetings, but publishes explanatory minutes two weeks later – also maintained its policy setting, refraining from extending its £375 billion quantitative easing bond-buying programme or moving its 0.5% interest rate.

The pound recovered some of its earlier losses to trade only slightly lower at $1.5112.

(09:32) European shares slip as investors watch central banks

An aggressive stimulus programme from Japan, the fruits of the first of three major central bank decisions today, was not enough to prevent declines in jittery European markets amid weak European and US economic data.

European shares headed down for a second straight day with Britain’s FTSE 100 lower by 0.15% at 6,410 and the pan-European FTSE Eurofirst 300 down by the same degree.

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5 comments so far. Why not have your say?

Adrian R

Apr 04, 2013 at 15:56

great news for the economy, another sign that usa is really pushing forward

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Adrian R

Apr 04, 2013 at 16:02

really need to bang some heads together in the UK frat party and get this economy back on track, we should look to the US for governance policy to really turn this tanker around...

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The A Man

Apr 04, 2013 at 16:06

*Draghi had looked 'clueless', having 'sent dovish signals without substantiating possible next steps'

This doesn't surprise me at all

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jeffian

Apr 04, 2013 at 19:51

Someone needs to call Draghi's bluff. He talks a good story ("we'll do whatever it takes.....") but if the markets really put the squeeze on, has he got the firepower to back it up? (No, is the answer to save you looking it up, well not unless the Germans are prepared to put up the money which is unlikely before the September elections). George Soros made a lot by calling Lamont's bluff and ejecting UK from the ERM. George, meet Mario.

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snoekie

Apr 05, 2013 at 04:58

On the template, Draghi left out a very important word, YET.

By forcing the action, they have made it the next template action, with refining.

Yep, he talks the talk, but that is all, as a politician he doesn't always, well I suppose mostly, tell the truth as it is, or even was.

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