Euro falls due to Spain auction

The euro dropped to a three-week low versus the dollar today after the president of the European Central Bank, Mario Draghi, revealed that the economic outlook for the eurozone is subject to downside risks linked to commodity prices and the debt crisis, reports Reuters.

The single currency was already pressurised after Spain’s borrowing costs increased at bond auction as well as reduced expectations of more quantitative easing in the US after the release of minutes from the Federal Reserve meeting on Tuesday.

Draghi’s comments came after the ECB announced that interest rates would be held at record lows, which was widely anticipated. The ECB president also said that any talk of loose monetary policy coming to an end was premature given the troubled state of the region’s economy.

The euro fell by more than six per cent on the greenback to $1.31411. It dropped as low as $1.3105 at one point during the day’s trading, the lowest it has been since mid-March.

Draghi said that inflationary pressures are coming from increased oil prices and higher indirect taxes over the short term, but that inflation expectations are anchored firmly in the medium term. He went on to say that given the present output and unemployment conditions, any talk of exit strategy is premature for the time being.