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Euro near two-week low after Draghi cautions on its rise

Euro near two-week low after Draghi cautions on its rise

Mario Draghi said on Thursday that the exchange rate is important for growth and price stability and that he wants to see “whether the appreciation is sustained and will alter our risk assessment. Draghi said economic activity in the euro area should recover gradually in 2013 but added there are more negative risks than positive. The euro also slipped to a two-week low against the British pound, which broadly strengthened after incoming Bank of England governor Mark Carney gave no hints that he favoured immediate easing monetary policy. Former Prime Minister Silvio Berlusconi has unnerved investors on concerns that his policies, such as tax-cut proposals, could undo the country’s efforts to win back investor confidence.

Meanwhile, the Pound strengthened for a third day against the Euro, set for its biggest weekly gain in two years, before the U.K. Debt Management Office auctions bills. Sterling was poised for its first weekly advance in four versus the Dollar. Carney favoured allowing the Bank of England greater flexibility in meeting it’s out reached inflation target and promoted the case for handing investors more insight into the future path of policy. While Carney said “slack in the economy” warrants sustaining aid, he focused less on whether that would mean further asset purchases and more on how to use communications to secure cheaper market borrowing costs and encourage greater spending by households and businesses.

On the FX markets, the euro plunged to a seven month low with EUR/USD falling over two cents to a low of $1.3369. Sterling had a better day on the markets with GBP/USD pushing back above $1.57 while GBP/EUR gained over one cent to back above the €1.17 level.

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