The dollar weakened against the euro on Thursday as the European Central Bank left its benchmark interest rate unchanged and committed to its bond-purchase program, while the central bank continued to take an optimistic view of the eurozone economy’s growth prospects.
The ECB will keep buying €60 billion a month at least through the end of December, while its benchmark interest rate will remain at 0%, according to the central bank. During the news conference following the decision, President Mario Draghi touched on the euro’s strengthening in the year-to-date, saying that the market should expect consequences from the appreciation. Against the buck, the shared currency was up nearly 14% this year, even though it remains below its historical average of $1.21.
The currency’s rally was also deemed responsible for the revision of the ECB’s inflation target, which was cut to 1.2% and 1.5% in 2018 and 2019, respectively, compared with earlier estimates of 1.3% and 1.6%.
During the news conference, the euro EURUSD, +0.9315% hit an intraday high $1.2059 before retreating to $1.2006, up from $1.1917 late Wednesday in New York. The euro had not breached the $1.20 mark since Aug. 29.
“Draghi has probably done enough to slow the appreciation in the euro but not the path of travel, which is up,” Patrick O’Donnell, senior investment manager at Aberdeen Standard Investments, said in emailed comments. “There’s no question that the ECB is worried about the euro’s appreciation but there’s little he can actually do about it. That’s why the euro has rallied based on what Draghi has said: markets know there’s only so much he can say.”