FOREX-Euro recovers after ECB delivers expected rate cut

Thu May 2, 2013 8:20am EDT

Related Topics

* Euro rises after ECB delivers widely expected rate cut

* Market awaits Draghi news conference at 1230 GMT

* Euro quickly recovers from brief falls

By Anooja Debnath

LONDON, May 2 (Reuters) - The euro rose against the dollar on Thursday after the European Central Bank cut interest rates to a new record low in an attempt to support its recession-mired economy, a move which had been widely expected by the market.

The ECB cut its benchmark refinancing rate by 25 basis points to 0.5 percent, its first cut in 10 months and left the deposit rate unchanged.

The euro rose 0.2 percent to $1.3215, inching towards a two-month high of $1.3243 hit on Wednesday. Traders said any gains in the euro could be capped by reported offers above $1.3220.

ECB President Mario Draghi's news conference at 1230 GMT will now be watched for hints on whether further rate cuts are in the pipeline or of additional non-conventional easing measures.

"The ECB rate cut came out as expected so we had the move higher in the euro," said Jane Foley, senior currency strategist at Rabobank.

"But recently we have seen the market hasn't really had the appetite for euro/dollar above the $1.32 level, that is where we are right now. It will be interesting to see if the euro has the momentum to go higher."

Traders said they would be watching to see whether Draghi can convince the market that ECB easing measures will be able to help the economy.

DRAGHI AWAITED

Highlighting the fragility of the euro zone economy which the ECB is trying to tackle, surveys on Thursday revealed a deepening contraction in manufacturing in April.

"Besides the refi rate cut we would focus on if the ECB unveils any measures to boost credit conditions, which would be a positive," said Kiran Kowshik, currency strategist at BNP Paribas.

He added that if Draghi stressed increasing downside risks to inflation markets could price in a future rate cut, which would be negative for the euro. But he expected any dips would be shallow.

"If you have Italian and Spanish bonds rallying it is difficult to sell the euro. We think ultimately it will go higher and we have a long recommendations on euro/dollar from $1.3000 targeting $1.3400 with a stop-loss at $1.2840."

Italian and Spanish bond yields hit new 2010 lows earlier on Thursday on growing demand for higher-yielding debt.

The euro was also helped against the dollar as the U.S. Federal Reserve on Wednesday said it would step up asset purchases if needed, which hurt the dollar.

If U.S. jobs data on Friday adds to the recent picture of a general softening in the U.S. economy it would intensify speculation that the Fed's next move is more likely to be to increase debt purchases, which would be negative for the dollar.

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.