Forex Market Review- Euro tumbles after Draghi does not signal more ECB bond buying

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The euro fell sharply against the dollar in the US session on Thursday after European Central Banks President Mario Draghi  did not signal in his speech that the ECB would expand its bond purchase program by the next meeting. This disappointed investors and dampened hopes of stemming the debt crisis. EURUSD fell to 1.3287 from an earlier high of 1.3458 that was reached after the announcement that the key interest rate was cut by 25 basis points to 1.00 percent


The only positive remark Draghi made was the ECB will extend liquidity measures. However for this to work, fiscal unity is required. So the focus now turns to the EU Summit on Friday to see whether some kind of agreement is reached on French President Nicolas Sarkozy and German Chancellor Angela Merkel’s push for changes to the European Union treaty to allow for tighter fiscal integration. Also they want to impose automatic sanctions on countries that violate budget limits.


The US dollar strengthened across the board in a risk off environment. Also US jobless claims fell to the lowest level in nine months, signalling the US economy is nowhere near a recession.The dollar index, which measures the U.S. unit against a basket of six major currencies, reversed higher to 78.789 from 78.331 before Draghi’s comments and up from 78.476 late Wednesday.


Sterling see sawed against the dollar today. The Bank of England left interest rates at 0.50 percent and its asset-buying program unchanged. The British pound initially rose and then turned lower along with the euro and U.S. stocks.  GBPUSD rose to 1.5768 then down to 1.5609.


Against the Japanese yen, the dollar moved up to 77.78 yen from 77.12.


The Canadian dollar fell from its strongest level in a month against its U.S. counterpart after the ECB Press conference that dampened market sentiment. This sent crude oil prices down by over US$4 to US$97.70. Since the loonie is a commodity-linked currency, falling oil prices dragged down the Canadian currency and pushed up USDCAD to 1.0233 from 1.0051.


Gold prices tumbled 3 percent as the US dollar strengthened. The two usually have an inverse relationship so when one rises, the other falls.  Gold prices tumbled to $1,703.75 from $1,755.85.