Euro headed for second weekly loss after ECB’s warning

The euro was headed for a second weekly decline on Friday after the head of the European Central Bank said economic growth was likely to be weaker than previously expected.

ECB President Mario Draghi blamed factors ranging from China’s slowdown to Brexit for the slowdown. The central bank left the bloc’s interest rates unchanged on Thursday.

The euro, which has traded in a range of $1.12 to $1.16 for the past three months, weakened as investors questioned whether the ECB would be able to raise interest rates this year, as its current guidance indicates.

Analysts expect the euro to underperform in the near term as monetary policy is expected to remain accommodative this year.

“Should the economy not recover, the market is likely to completely price out a normalisation of interest rates in the foreseeable future, which would pressure the euro,” said Zhou Hao, an analyst at Commerzbank.

But he added that if a rate increase was completely priced out, little room would be left to the downside, “so the single currency’s depreciation potential would be limited”.

The euro was broadly flat on Friday at $1.1327, close to Thursday’s two-month low of $1.1289.

Sterling reached an 11-week high on Friday after a report that Northern Ireland’s Democratic Unionist Party had privately decided to offer conditional backing for Prime Minister Theresa May’s Brexit deal next week.

The Sun report pushed the pound 0.4 percent higher to $1.3114, its highest since Nov. 8. Sterling pound has risen about 1.8 percent this week, moving above $1.30 to the dollar on hopes Britain will avoid a no-deal Brexit on March 29.

The dollar index, a gauge of its value versus six other major currencies, fell 0.2 percent to 96.41.

The dollar is facing a tough year as growth at home and globally comes under pressure and the Federal Reserve moves closer to pausing its rate-hike cycle.

Interest rate futures are pricing in no rate change by the Fed through 2019, a turnaround from the four increases it last year in a major boost to the dollar.