The euro dropped to a three-week low of $1.1662 on Thursday after minutes from the European Central Bank’s July policy meeting showed policymakers were worried about a possible overshoot in the euro.
The move put the single currency, already sharply down on the day against the dollar, on track for its biggest daily loss in more than four months.
The minutes showed rate-setters were highly aware of the risk that the euro could threaten the ECB’s efforts to get inflation higher as they decided against any change to their pledge for continued monetary stimulus last month.
“The euro has shot down as a result. It is a good question of how much further we will go. The reality is the ECB is definitely more concerned than the market gave it credit for,” said Simon Derrick, chief market analyst with Bank of New York Mellon in London. “I think it is entirely possible you could see further downward pressure on the euro from here.”
Government debt from the euro zone’s highly-indebted southern member states – seen as the biggest beneficiaries of ECB stimulus – were most in demand, with the yield on Portuguese and Spanish 10-year government debt dropping 2-4 basis points.
The currency weakness sent stock markets higher.
European stocks and euro zone stocks jumped to a session high after the ECB minutes, both turning positive before retreating to previous levels, down 0.1 percent on the day.
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