FT: Euro falls to six-month low as Stark leaves ECB post
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The euro dropped to a six-month low against the dollar on Friday after Jürgen Stark, European Central Bank Executive Board member, resigned from his position.
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Reports suggested that Mr Stark had left his post due to an internal dispute over the central bank’s bond buying programme.
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The single currency was already under pressure after the European Central Bank abandoned its hawkish stance on interest rates.
The euro suffered on Thursday after Jean Claude Trichet, ECB president, warned that downside risks to the eurozone economy had intensified, adding that eurozone inflation should fall below 2 per cent in 2012 and price risks were “broadly balanced”.
That marked a change from last month when he said there were “upside risks to price stability”.
Analyst said that indicated that the ECB, which raised interest rates in April and July, had now moved to a neutral monetary policy stance in the face of heightened concerns over eurozone growth and increasing worries over the eurozone debt crisis.
“The market has been looking for an excuse to sell the euro and the U-turn in policy cycle direction signalled by the ECB may suffice,” said Marc Chandler at Brown Brothers Harriman.
Analysts said another reason for the euro’s fall was the worsening situation in Greece.
Derek Halpenny at Bank of Tokyo-Mitsubishi UFJ said the market was now pricing for substantial default in Greece, while the scale of economic contraction in the country remained alarming.
“The situation in Greece remains dire and that suggests to us that confidence in the eurozone will remain very fragile indeed,” he said. “The euro will suffer over time.”
On Friday, the euro fell 1.2 per cent to $1.3719 against the dollar, its weakest level since late February was 0.9 per cent weaker at Y106.71 against the yen and fell 0.9 per cent to £0.8629 against the pound
The dollar remained supported elsewhere, given that President Barack Obama’s announcement of a $450bn stimulus package did little to boost risk appetite and suppress haven demand for the US currency.
Analysts expressed doubts over whether Mr Obama could push the measures through a divided Congress.
A speech from Ben Bernanke, chairman of the Federal Reserve, also supported the dollar as he made little mention of monetary policy plans, suggesting that further quantitative easing was not on the agenda at the central bank’s policy meeting later this month.
The dollar rose 0.3 per cent to Y77.76 against the yen, climbed 0.4 per cent to $1.5902 against the pound and was up 1 per cent at SFr0.8834 against the Swiss franc.
