Euro slips as Draghi hints ECB may act in June

PAN PYLAS
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People walk past an electronic stock indicator in Tokyo Thursday, May 8, 2014. Asian stock markets were mostly higher Thursday after China's trade improved and Federal Reserve Chair Janet Yellen vowed low interest rates would continue until the U.S. job market is healthy. Tokyo's Nikkei 225 stock index, the region's heavyweight, advanced 130.33 points, or 0.9 percent to 14,163.78. (AP Photo/Shizuo Kambayashi)

LONDON (AP) — The euro slid below $1.39 Thursday after the European Central Bank's president, Mario Draghi, gave a strong hint that the bank may ease its monetary policy next month.

Though the ECB kept interest rates unchanged, Draghi said the bank's governing council was ready to do more, possibly in June, to shore up the recovery and prevent prices from falling. Inflation in the 18-country eurozone stands at an annual rate of 0.7 percent, way below the ECB's target of just below 2 percent.

He said the 24-member council was "dissatisfied about the projected path of inflation" and "is not resigned to have too low inflation for too long a time." And to reiterate his dovish tone, he said the council "would be comfortable with acting next time" when it will be armed with new staff inflation forecasts.

"The key was that just as it appeared that the euro might hit $1.40, Draghi said the magic words regarding acting in June and the currency weakened," said Gary Jenkins, an analyst at ING Capital.

Following his comments, the euro was down 0.4 percent on the day at $1.3857.

The recent high value of the euro — it nearly breached the $1.40 mark for the first time since November 2011 earlier during Draghi's remarks — is one of the reasons why inflation is low.

A high currency can rein in economic activity by making exports more expensive and making imports, such as energy, cheaper. Though the ECB does not target an exchange rate, cutting interest rates or some other type of stimulus measure could reduce the value of the euro.

Very low inflation, or a period of falling prices, also known as deflation, can derail a recovery by prompting consumers to delay purchases in the hope of bargains down the line.

Stocks in Europe weren't affected too much by Draghi as the focus remained on a vow from Federal Reserve Chair Janet Yellen to maintain low interest rates until the U.S. job market is healthy.

Germany's DAX was up 0.9 percent at 9,601 while the CAC-40 in France rose 1.2 percent to 4,501. Britain's FTSE 100 was up 0.5 percent at 6,832.

In the U.S., the Dow Jones industrial average was up 0.3 percent at 16,569 while the broader S&P 500 index rose 0.4 percent to 1,885.

U.S. stock markets turned positive Wednesday after Yellen told lawmakers that the U.S. job market is "far from satisfactory." She said the Fed will begin increasing interest rates only when there is enough progress in restoring full employment and when inflation is back up to its target of 2 percent. Yellen's comments appeared to ease concerns that the Fed might move too quickly to raise interest rates.

Adding to the upbeat sentiment was China's April trade data that showed an improvement in exports. Exports rose 0.9 percent from the previous year, compared with a 6.6 percent decline in March. Imports also grew after a contraction in March but at a subdued level.

Earlier in Asia, Tokyo's Nikkei 225 stock index, the region's heavyweight, closed up 0.9 percent at 14,163.78 and South Korea's Kospi added 0.6 percent to 1,950.60. Hong Kong's Hang Seng added 0.4 percent to 21,837.12 and China's Shanghai Composite gained 0.3 percent to 2,015.27.