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Euro falls first time in 4 days

London - The euro fell for the first time in four days after European Central Bank (ECB) executive board member Peter Praet said there was still scope for lower interest rates.

Europe’s shared currency weakened against most of its 16 major peers Friday and pared a weekly gain versus the dollar. The ECB could cut rates if new negative shocks materialized that would worsen the region’s economic outlook, Praet, who is also the central bank’s chief economist, said in an interview with La Repubblica published Friday.

“We have not reached the physical lower bound” for interest rates, he said. The dollar fell earlier this week after Federal Reserve policy makers lowered the US rate path.

The “market is vulnerable” to the comments from Praet “because of the general lack of conviction at almost every turn this year in foreign exchange,” said John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in Hellerup, Denmark. After the Fed meeting on March 16 “consensus may have swung too quickly the other way.”

The euro fell 0.4% to $1.1280 as of 7:36 a.m. New York time, paring this week’s gain to 1.1%. It is still set for a third weekly advance versus the dollar.

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, rose 0.2%, after falling 2.2% in the previous two days. It dropped earlier to the lowest level since June.

The euro gained 2.6% versus the dollar since March 9, the day before the ECB lowered interest rates and President Mario Draghi said he didn’t anticipate additional cuts. The shared currency also rose as the dollar was weighed down by the Fed’s lower rate-path projections.

Year-end forecast

The euro is forecast to weaken to $1.08 by year-end, according to the median estimate of economists in a Bloomberg survey.

Draghi told European Union leaders on Thursday that the central bank has “no alternative” to its recent rate cuts and monetary policy actions, according to two officials familiar with deliberations. He said to reporters in Brussels that the ECB can’t do much about some of the euro area’s biggest vulnerabilities, even as he pledged that rates would stay low and to use “all the appropriate instruments” as the outlook requires.

As the Fed is still set to raise interest rates the dollar should move higher, according to Peter Dragicevich, a foreign- exchange strategist at Commonwealth Bank of Australia in London, who says the US central bank could move again in June. However, the dollar won’t return to its recent peak, he said.

“The comments from the ECB’s Praet and Draghi have exerted some pressure on the euro,” said Dragicevich.

“A drift back down towards $1.10 is more likely. The ECB’s new package is more focused on the credit channel rather than the interest rate and FX channel. So the impetus will come from the dollar and US rates leg. And the Fed has made it clear it won’t be aggressive in its cycle. That should limit the extent of the rebound in the dollar.”

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