By Ira Iosebashvili and Josie Cox
The euro slid to its lowest level against the dollar in 14
months on Thursday, after the European Central Bank unexpectedly
cut its main policy rates and announced additional measures aimed
at boosting the region's sagging economy.
In a statement accompanying its decision, the central bank said
it was trimming the main refinancing rate to 0.05% from 0.15% and
the deposit rate to -0.2% from -0.1%. ECB President Mario Draghi
said at a news conference that the ECB would start buying
asset-backed securities and covered bonds in a further bid to
stimulate growth, and that the governing council had discussed the
implementation of a program of broad-based asset purchases, known
as quantitative easing.
The euro was recently down 1.5% to $1.2949, its lowest level
against the dollar since July 2013, and on track for its steepest
drop against the greenback since November 2011.
Investors selling the euro to buy the dollar pushed the buck up
to a nine-month high of ¥105.37 against the Japanese yen. The euro
lost 1.2% against the yen to trade at ¥136.17.
The ECB's move surprised market watchers, many of whom believed
the central bank would wait several months before further easing
monetary policy, to give measures taken earlier in the year time to
take effect. It also highlighted the effect that divergent monetary
policies in the U.S. and eurozone is likely to have on the dollar
and euro. While the ECB is expected to continue on an easing path,
many analysts expect the Federal Reserve will raise rates in the
middle of next year, making the greenback a more attractive
proposition than the euro for yield-seeking investors.
While data in the U.S. show a recovery that is gaining traction,
"the eurozone is stuck in the mud right now," said Carl Forcheski,
director of foreign exchange at Societe Generale. "The overall
direction for the euro appears to be lower."
The ECB in June became the largest central bank to experiment
with a negative rate on bank deposits, a measure aimed at
encouraging banks to lend surplus funds to other financial
institutions rather than parking them at the ECB.
Poor data in recent weeks, however, have repeatedly underscored
the sluggishness of the eurozone's economic recovery, fanning
recessionary fears and heaping pressure on the central bank to take
further stimulus measures.
In other currencies, the British pound lost 0.7% against the
dollar to trade at $1.6344, its lowest level since early February.
The Bank of England left its benchmark interest rate unchanged
Thursday as officials led by Gov. Mark Carney await signs that
Britons' earnings are to set to rise.
--Write to Ira Iosebashvili at ira.iosebashvili@wsj.com and
Josie Cox at josie.cox@wsj.com