NEW YORK (Reuters) - The euro slumped to a two-year low and European government bond yields dipped on Thursday after European Central Bank chief Mario Draghi reiterated plans to revive the struggling euro zone economy by increasing the ECB’s balance sheet.
Stocks on world markets were mixed, with Wall Street little changed a day ahead of the U.S. government’s employment report for October. The S&P 500 managed to touch another record high.
Markets had been unsettled leading up to the European Central Bank’s monthly policy meeting after Reuters reported that some central bank governors who set ECB policy were unhappy about Draghi’s secretive approach and erratic communication.
But in a statement that strengthened the ECB’s commitment to re-inflate its balance sheet toward 3 trillion euros, its crisis-era level, Draghi said disagreements were just part of central bank policymaking.
His statement and the promise of another trillion euros of easing sent the euro EUR= tumbling to $1.2396, its lowest level since August 2012, and pushed the FTSEurofirst 300 .FTEU3 index of top European shares up 1 percent, though the surge was short-lived. The index closed up 0.19 percent.
The euro pared declines as investors looked for more concrete measures from the central bank and was last off 0.6 percent, at $1.2405.
“It still seems as though the ECB is hemmed in by fiscal policymakers who are reluctant to expand the monetary base potentially and reform,” said Jack Ablin, chief investment officer at BMO Private Bank in Chicago. “Draghi has sort of reached the end of his authority and his open-mouth policy isn’t working.”
Yields on government bonds issued by Portugal and France fell on the expectation that additional policy actions will keep rates low. The yield on Germany’s 10-year note DE10YT=RR was flat at 0.828 percent after hitting a high of 0.858 percent. [GVD/EUR]
U.S. stocks edged higher as some disappointing earnings held equities in check, despite another round of upbeat data on the labor market.
The Dow Jones industrial average .DJI rose 34.01 points, or 0.19 percent, to 17,518.54, the S&P 500 .SPX gained 1.59 points, or 0.08 percent, to 2,025.16, and the Nasdaq Composite .IXIC dropped 1.99 points, or 0.04 percent, to 4,618.73.
The MSCI all-country world equity index .MIWD00000PUS was off 0.18 percent.
The combination of Draghi’s message and a bigger-than- expected fall in the number of Americans applying for first-time unemployment benefits helped push the dollar .DXY to its highest level since June 2010 against a basket of major currencies. [/FRX]
The Bank of England also met on Thursday and left its record low rates in place. There are signs the BoE is edging toward a first post-crisis rate hike, but a recent slowing of economic momentum has cooled expectations it will move soon.
The dollar’s strength continued to weigh on oil prices, Brent oil, which has plunged nearly 30 percent from its high in June, remained near a four-year low at $82.82 a barrel LCOc1. U.S. crude CLc1 was down 0.8 percent at $78.03. [O/R]
Benchmark 10-year Treasury notes US10YT=RR fell 6/32 in price to yield 2.3712 percent. [US/]
Reporting by Chuck Mikolajczak; Editing by Dan Grebler and Leslie Adler