Euro rallies from two-year low as investors pare back QE bets

The euro rebounded from a more than two-year low against the dollar on Thursday after European Central Bank President Mario Draghi did not send as strong a signal about injecting more stimulus as the market had expected.

Investors were looking for specific details about the ECB's quantitative easing plan, or any indication about when the bank may embark on its asset-buying plan. Instead, Draghi kept investors guessing and prompted them to hold off making further bets on the euro.

The dollar, meanwhile, zoomed to a more than seven-year peak against the yen after Japanese media projections showed Prime Minister Shinzo Abe's coalition might keep its two-thirds majority in the lower house of parliament in the Dec. 14 elections. More yen printing would be expected if Abe's party wins.


The focus in New York trading, however, has been on the ECB. In a news briefing after the ECB kept interest rates unchanged, Draghi said the central bank would judge early next year whether it needs to take more action to revive the eurozone economy.

In addition, new forecasts by ECB staff sharply downgraded the eurozone's growth outlook for next year to 1.0 percent from the 1.6 percent predicted in September. Inflation expectations for 2015 were also reduced, to just 0.7 percent from a September forecast of 1.1 percent.

In late trading, the euro gained 0.5 percent to $1.2368, after hitting a more than two-year trough of $1.2284.

In the options market, Draghi's remarks pushed one-month implied volatility lower to 7.438 percent. Implied volatility, a measure of currency price movements< has been on the rise since July as the euro stumbled amid evidence upon evidence of a slowing economy and the expectation of further quantitative easing by the ECB.

Meanwhile, the dollar touched a seven-year high against the yen at 120.25 yen, and was last at 119.82, flat on the day.

—By Reuters

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