FOREX-Euro weakens after ECB cuts rates

* ECB cuts main refinancing rate and deposit rate
* China central bank surprises with rate cut
* Euro underperforms growth-linked currencies

NEW YORK, July 5 (Reuters) - The euro slumped broadly on
Thursday, hitting a one-month low against the dollar after the
European Central Bank cut its main interest rate to a record low
and reduced its deposit rate to zero to help tackle the euro
zone debt crisis.
Analysts said although the market had been positioned for a
25-basis-point-cut in the ECB'S main refinancing rate, the cut
in the deposit rate - effectively encouraging banks to lend
funds to each other overnight - caught some by surprise.

"It dropped euro/dollar," said Brian Kim, currency
strategist at RBS in Stamford, Connecticut. "It moved more in
favor of the dollar at that point as I guess people saw even
more scope for easing."
Other investors were hoping for more.
That view was reinforced when European Central Bank
President Mario Draghi said at a press conference after the rate
announcement that the ECB sees a weakening of growth for the
euro zone and that downside risks to growth are materializing.
{ID:nF9E8HA00U].
But Draghi said the ECB's bond-buying program and other such
crisis measures are strictly temporary, resisting pressures to
reactivate the plan to ease funding costs for countries mired in
the euro zone debt crisis. [ECB RATES/BONDS]
"It sounds like, at the margin, the outlook has deteriorated
from the ECB perspective," said Michael Woolfolk, senior
currency strategist at BNY Mellon in New York.
The euro was traded down 1.05 percent against the
dollar at $1.2391, after falling as low as $1.2362.
Against the yen, the euro was 0.99 percent lower at 98.99
yen.
The dollar posted a two-week high against the yen after U.S.
employment data showed signs of hope for the labor market.
The dollar climbed 0.09 percent at 79.90 yen.
Earlier in the session the euro briefly jumped after the
Chinese central bank unexpectedly cut its benchmark interest
rates in the latest attempt to protect the world's
second-largest economy from signs of slowing growth.

But the main focus remained the ECB. Many market players
said the rate cut would not tackle structural problems within
the euro zone, and the single currency could come under further
selling pressure.
"Draghi was overwhelmingly cautious, yet did not suggest new
liquidity or policy measures being considered, so there is a
risk of being behind the curve in addressing a lot of problems,
which is negative for the euro," said Omer Esiner, chief market
analyst, Commonwealth Foreign Exchange, Washington D.C.
Spain also paid higher premiums to sell debt on Thursday
than at its previous auction. {ID:nL6E8I58K1].
The dollar also climbed to a one-month high against the
Swiss franc and was last up 1.02 percent at 0.9689.

EURO LOWER ON THE CROSSES
The euro came under pressure against growth-linked
currencies, with the Chinese rate cut seen as supporting
perceived riskier assets. It fell to record lows both against
the Australian dollar and the New Zealand currency
.
Some analysts said although commodity currencies had
benefited from an improvement in risk appetite after the recent
EU summit deal, the longer-term outlook was clouded.
"The Australian dollar is likely to come under pressure as
signs of a global slowdown continue to emerge and we see further
warning signals coming from China," said Ian Stannard, head of
European FX strategy at Morgan Stanley in London.
The Bank of England voted to restart its quantitative easing
program with another 50 billion pound cash injection, a move
that was widely anticipated by the market.
The euro fell to its lowest since May 16 against
sterling, as the ECB rate cut and concerns about the currency
bloc's debt crisis outweighed looser UK monetary policy.
Sterling fell 0.44 percent to $1.5524.
The U.S. government reported the number of Americans filing
new claims for unemployment benefits last week fell by the most
in two months, another hopeful sign for the struggling labor
market. The government's closely watched June employment report
will be released on Friday..
U.S. non-farm job creation is forecast at 90,000 in June,
according to the latest Reuters poll of economists.
"If the number severely disappoints, then it brings
expectations for QEIII higher. In that scenario we see dollar
weakness, but barring somewhat that downside surprise, a number
at consensus or slightly above is not going to reverse the
sentiment to take the option of QE off the table," said RBS'
Kim.
Quantitative easing is the term for bond buying operations
by the Federal Reserve to inject more cash into the economy,
given interest rates for borrowing are already at or near zero.