Mario Draghi's Bearish Comments Push Euro Lower

Mario Draghi
Source: World Economic Forum
Mario Draghi

The euro declined against the dollar on Monday after the European Central Bank President Mario Draghi said economic indicators signaled further weakness in the euro zone.

"Available indicators signal further weakness at the beginning of 2013, with domestic demand remaining dampened. This is due to weak consumer and investor sentiment and to the necessary balance sheet adjustments in both the public and private sectors. Foreign demand also remains subdued," Draghi said in a statement before the European Parliament's Committee on Economic and Monetary Affairs in Brussles.

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The euro declined to 1.3340 against the dollar from 1.3360, following his comments.

Draghi also sounded a dovish note on inflation, saying: "annual inflation in the euro area has continued to moderate, falling from 2.5 percent in October to 2.2 percent in November and December and 2.0 percent in January... Inflation is expected to decline to below 2 percent in the near term."

But Draghi ruled out using the currency as a tool to boost the euro zone economy after a number of euro zone policymakers said last week the euro was too strong.

"As regards the exchange rate, let me be clear that the exchange rate is not a policy target, but it is important for growth and price stability," Draghi said.

Over the weekend, G-20 finance chiefs and central bank heads re-affirmed their commitment not to engage in a currency war.

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"We've seen the euro come off slightly, it's still within its daily range, still above 1.3290," Kathleen Brooks, research director at said. "What it does reinforce though is that Draghi is very worried about the strength of the euro still. However, he's still very limited in the tools that he can use, you know, it's a market-based exchange rate, what can he do?"