* Euro surges on deflation denial, postponing of any policy
* Aussie bolstered by upbeat retail sales data
* U.S. weekly jobless claims fall more than expected
By Daniel Bases
NEW YORK, 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 before
drifting down to $1.35865, still a gain of 0.40 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 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 rose.
While the U.S. data was mixed, the ECB's decision to wait
for more economic data before acting on stimulus raised
questions about the euro zone's recovery despite its already
ultra-low borrowing costs meant to push up prices.
Euro zone inflation fell to just 0.7 percent last month and
retail sales on Wednesday were disappointing, but recent
business sentiment surveys have been more positive, offering the
ECB some room to maneuver 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," said
Vassili Serebriakov, currency strategist at BNP Paribas in New
"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. It has
since slipped back to 0.83250, a rise of 0.325 percent on the
day. Against the Japanese currency, the euro climbed 1.15
percent to 138.81. The greenback rose 0.68 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 amid lower
commodities prices and a slowdown in China. 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 0.63 percent
The greenback gave up its gains on the Canadian dollar to
trade down 0.14 percent at C$1.1065. It earlier reached a
session high of C$1.1122, after Canada reported a much
bigger-than-expected trade deficit in December of C$1.66 billion
($1.49 billion), its biggest gap since 2012.