* Euro surges on deflation denial, postponing of any policy
* Aussie bolstered by upbeat retail sales data
* Dollar weakens vs yen
* U.S. weekly jobless claims fall more than expected
By Daniel Bases
LONDON, Feb 6 The euro rallied on Thursday after
European Central Bank President Mario Draghi said there is no
euro zone deflation problem, following the bank's decision to
leave interest rates unchanged and wait for more data before
Leaving the main monetary policy rate at 0.25 percent did
not immediately spark the short-covering rally that saw the euro
zone currency climb against the U.S. dollar, yen, and sterling.
"Really the move started when (Draghi) mentioned there is no
deflation problem. That is when the euro gapped higher because
when you are denying deflation you are not easing anytime soon,"
said Sebastian Galy, senior currency strategist at Societe
Generale in New York.
The market was largely betting the other way on the ECB,
expecting either a rate cut or a strong signal from Draghi that
this was a prospect. It got neither and that set off the euro's
short-covering rally to hit a one-week high of $1.36190, up 0.56
percent, against the U.S. dollar, according to EBS
data. The euro hit a two-month low on Monday
A bigger-than-expected fall of 20,000 new claims for U.S.
unemployment benefits to a seasonally adjusted 331,000 did
little to help underpin the U.S. dollar. The U.S. trade deficit
widened to $38.7 billion in December as exports fell and imports
While the U.S. data was mixed, the ECB's decision to wait
for more economic data before acting on what kind of stimulus it
might take raised questions about the euro zone's recovery
despite its already ultra-low borrowing costs meant to push up
Euro zone inflation fell to just 0.7 percent last month and
retail sales numbers on Wednesday were disappointing but recent
business sentiment surveys have been more positive, offering the
ECB some room to manoeuvre on policy.
"Draghi has taken time to explain why the ECB didn't take
any action. One thing he highlighted was about new economic
projections in March. He didn't commit to easing. I would be
surprised if he did. But he is open to ease more if the next
inflation print is similar to what we saw in January," Vassili
Serebriakov, currency strategist at BNP Paribas in New York.
"On the crosses, it's all about relative rate differentials
for the rest of the year. We are comfortable with short trades
with the euro against other European currencies. European rates
will remain low, while rates in the U.K., Norway and Sweden
should rise," he added.
The euro strengthened to a five-week high against the
British pound, trading up to 0.83505 pence, a gain
of more than 0.50 percent on the day.
Against the Japanese currency, the euro climbed 0.80 percent
at 138.35 yen. The greenback rose 0.31 percent to
Australia's dollar added to gains which have seen it jump
more than 2 percent this week after the country's central bank
dropped its bias towards lower interest rates and toned down a
long-term call for the currency to weaken.
That put a halt to a months-long slide in the Aussie due to
worries over Australia's economic prospects in the face of lower
commodities prices and a slowdown in China, and some traders
reported a handful of banks going long on the Aussie against the
euro ahead of the ECB decision.
Investors pushed the Aussie dollar up a further 0.69 percent
The greenback rose 0.15 percent to C$1.1096, after
Canada reported a much bigger-than-expected trade deficit in
December of C$1.66 billion ($1.49 billion), its biggest gap
"The Canadian data was atrocious," said Societe Generale's
Galy, who added: "People are starting to get hesitant on
Canada's growth outlook."