The euro declined the most since July versus the US dollar after European Central Bank (ECB) President Mario Draghi said a strong currency could slow the region’s economic recovery, lifting bets the bank may lower interest rates.
The yen declined against the greenback for the first time in 13 weeks as the Bank of Japan (BOJ) governor said he will step down early, accelerating a transition that may aid the prime minister’s plan for monetary easing. The BOJ will meet on Tuesday. The euro fell against all but two of its 16 most-traded peers this week as Italian and Spanish bonds slumped amid political turmoil.
“The euro correction is probably long overdue,” Greg Anderson, New York-based head of G10 currency strategy at Citigroup Inc, said on Friday in a telephone interview. “The market bought into the theme that the ECB is going to be the tightest of the G4 central banks because they won’t do anything while everyone else does quantitative easing. What Draghi did changed the psychology a bit.”
The US Federal Reserve, ECB, BOJ and Bank of England comprise the G4.
The euro declined 2 percent to US$1.3366 this week and touched US$1.3353 on Friday, its weakest level since Jan. 25. The loss was the euro’s biggest drop since the five days ended July 6. The shared currency fell 2.2 percent to ￥123.88. The yen depreciated 0.1 percent to ￥92.88 per US dollar after touching ￥94.06 on Feb. 6, its lowest level since May 5, 2010.
The euro, which touched a 14-month high of US$1.3711 on Feb. 1, has been the best performer this year among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes, gaining 2 percent. The yen weakened the most, 6.6 percent, and the US dollar increased 0.6 percent.
The British pound rose the most in two years this week versus the euro amid bets the Bank of England will refrain from extending its stimulus program in contrast to its European counterpart.
Sterling appreciated 2.7 percent to ￡0.8459 per euro this week, its biggest five-day drop since January 2011. The pound gained 0.7 percent to US$1.5796.