Draghi’s Plans at Mercy of Fed’s Yellen

Mario Draghi’s ambitions to weaken the euro are at the mercy of Federal Reserve Chair Janet Yellen.

The U.S. central bank chief sent the euro sliding below $1.35 last week for the first time since February when she said U.S. interest rates may rise sooner than investors expect. Her European Central Bank peer is having less impact: Draghi’s unprecedented decision to drop a key interest rate to below zero last month pushed the shared currency up 0.2 percent before Yellen’s speech. The euro is also losing its link with the continent’s bond market, as its correlation to the yield spreads of Italy, Spain and Portugal approaches zero.

Dealers in euro-dollar, the world’s most-traded currency pair, say they’re increasingly influenced by the U.S. because they’ve assimilated the interest-rate cuts Draghi unveiled and concluded he has no further surprises in store. The prospect of a Fed rate boost is also deemed more important than the conflict in the Gaza Strip and international anger over the downing of a Malaysian airliner last week in Ukraine.

Bloomberg

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