Dollar hits three-year euro low as European Central Bank warns of forex volatility

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The U.S. dollar reversed losses on Thursday when President Donald Trump said he wanted a "strong dollar", a day after Treasury Secretary Steven Mnuchin said he welcomed a weaker greenback, which moved the currency lower against the euro.

"If you take the overall stance of the US administration, it's protectionist and still it's not clear what kind of dollar the president and the Treasury want", said Vassili Serebriakov, FX strategist at Credit Agricole in NY.

At 18:00 GMT the FxWirePro's Hourly Strength Index of Euro was slightly bullish 58.4049, while the FxWirePro's Hourly Strength Index of US Dollar was highly bearish at -101.109.

Draghi also said that recent swings in the euro exchange rate with the dollar — mostly up in the past few days — were "a potential source of instability" that required "monitoring".

"Overall, the comments regarding the exchange rate were benign", said Eric Viloria, currency strategist at Wells Fargo Securities in NY.

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The interest rates were left unchanged by the European Central Bank, while net monthly asset purchases were maintained at euro 30 billion until "the end of September 2018, or beyond, if necessary".

This is because a stronger exchange rate is expected to hurt exports and company earnings. "Put simply, Draghi is warning that foreign countries could follow the U.S.in a race to the bottom if the US tries to devalue the dollar".

Still, in a widely expected decision, the European Central Bank kept its key interest rate deep in negative territory, maintained a pledge to hold rates steady until well after bond buys conclude and promised to continue asset purchases until a sustained rebound in inflation. After the apparently "hawkish" minutes of the December meeting, there had been some speculation that the forward guidance on the asset purchase program might be altered, noted Lloyds Bank in a research report. Currently, the bank says the purchases will continue at least through September and longer if necessary, leaving the exact end open.

He spoke after the European Central Bank left its massive financial stimulus for the eurozone economy in place, opting not to rock the boat after Mnuchin's comments.

Credit to businesses grew by 2.9 percent year-on-year last month, adjusting for some purely financial transactions, a drop of 0.2 percentage points compared with the figure for November. The negative rate is a penalty aimed at pushing banks to lend the money rather than let it pile up risk-free at the ECB.

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