Currencies: Euro falls in biggest one-day move in 8 months after ECB decision

The euro sold off after the European Central Bank announced Thursday that it would look to finish its bond-buying program by year-end but also pledged to leave interest rates unchanged until mid-2019. The move marked the shared currency’s worst one-day slide since late October last year, according to WSJ Market Data Group.

During ECB President Mario Draghi’s news conference, the euro EURUSD, -1.2807%  slipped to its worst level since the beginning of the month. It last bought $1.1648, compared with $1.1791 late Wednesday. Ahead of the decision, the shared currency had been stronger, as market participants hoped for the central bank to take a hawkish stance and outright end its quantitative easing program.

The ECB announced it would taper is asset purchases further to €15 billion a month from €30 billion at the moment come October, before the quantitative easing program will likely conclude in December. Interest rates will meanwhile remain at their ultralow levels at least until summer next year.

“Markets have seen rates and the euro move lower, as the ECB’s guidance on rates has ruled out a June [2019] rate hike, so markets have had to reprice,” said Jacqui Douglas, chief European macro strategist at TD Securities.

So even though ECB President Mario Draghi de facto announced the end of QE, as market participants had hoped, the way he did it was still perceived as dovish.

The ECB also cut the eurozone’s growth forecast for this year to 2.1% from 2.4%.

Meanwhile, the ICE U.S. Dollar Index DXY, +0.94% which is heavily weighted towards the euro, rallied to its best level since late May on the back of the events, eclipsing previous losses. It was last up 0.8% at 94.467, while the broader measure of the WSJ Dollar Index BUXX, +0.53%  was up 0.6% at 87.65.

The ECB’s cautiousness on Thursday stood in contrast to Wednesday’s move by the Federal Reserve. The Fed raised its key interest rate by 25 basis points to a range of 1.75% to 2%, increasing the rate divergence between the U.S. and its developed-world peers. In addition, the Fed indicated a shift in its thinking, projecting a total of four rate increases this year, instead of the three previously indicated.

Read: The ECB, not the Fed, is the match that will spark bond market volatility: analyst

On Friday, the Bank of Japan will conclude this central bank-heavy week and publish their monetary policy update, which is expected to leave interest rates unchanged. Versus the Japanese yen USDJPY, +0.02%  the dollar strengthened to ¥110.40 from ¥110.34 late Wednesday in New York.

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