The euro slumped on Thursday as the ECB dampened hopes about escalated bond purchases that could put a cap on yields in debt-ridden countries, as well as lending to the IMF to help prevent the crisis from spreading to the region's healthier economies.
The ECB did cut interest rates by 25 basis points to 1.0 percent, but ECB President Mario Draghi said the bank did not consider cutting rates further and the decision to ease was not unanimous. "People thought there would be action by the ECB, which there was, but clearly he has dampened expectations for some extraordinary ECB response," said John McCarthy, director of foreign exchange at ING Capital Markets in New York.
The euro fell to session lows at $1.32890, its lowest in more than a week, and was last at $1.33230, down 0.7 percent on the day. In the options market, negative euro sentiment was also palpable. The 25 delta one-month risk reversals for euro/dollar showed increased bearishness from the previous session, trading as high as -2.85 vols, with a bias for puts, from 2.75 vols on Wednesday.
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