* Euro falls 0.40 percent against dollar
* European policymakers more dovish than expected-strategist
* Yen sets fresh 10-week low versus dollar
* Non-farm payrolls key to further dollar gains
(Adds euro drop, Draghi and strategist comments, changes
byline, dateline; previous LONDON)
By Michael Connor
NEW YORK, April 3 The euro dropped on Thursday
after the European Central Bank kept interest rates on hold and
pledged to use unconventional measures if needed to battle low
inflation in the euro zone.
The currency shared by 18 nations dipped as low as $1.3736
during a news conference by ECB President Mario Draghi and later
declined as low as $1.3711.
The euro last stood off 0.40 percent against the
dollar at $1.3716 and was down 0.14 percent against the British
pound and 0.25 percent against the Japanese yen.
"The (ECB's) Governing Council is unanimous in its commitment
to using also unconventional instruments within its mandate in
order to cope effectively with risks of a too prolonged period
of low inflation," Draghi told the news conference.
Euro zone annual inflation ticked down to 0.5 percent in
March, its lowest since the economy was deep in recession in
2009, and its sixth month in what Draghi has described as "the
danger zone" below 1 percent.
"The ECB is being slightly more dovish than the market
expected," said Kathy Lien, managing director at BK Asset
Management in New York. "The main takeaway is that the council
is considering unusual techniques, and that's negative for
The euro's decline fed a rally in the dollar, with the U.S.
dollar index up 0.27 percent to 80.418 in early New York
The dollar was up against the yen at 103.95 yen after
touching a high of 104.06, a level last seen on Jan. 23.
Unlike in January and February, there had been few if any
mainstream voices in the market predicting action from the ECB
in the form of a cut in its official interest rates.
The main move of the past two weeks on major currency
markets has been the dollar's steady march higher against the
yen, awakening hopes that the greenback may finally be set to
deliver on the break higher predicted by many banks in January.
The dollar has gained almost 3 percent against the yen since
U.S. Federal Reserve chief Janet Yellen told markets on March 19
that the Fed might raise interest rates next spring. U.S. jobs
data on Friday may be the decisive factor for any further gains.
"There is a lot of resistance (to more dollar gains) around
104 yen and we may not break that today," said a dealer with one
bank in London. "The key to any move higher will be non-farm
International Monetary Fund Managing Director Christine
Lagarde on Wednesday called on the ECB to ease policy, warning
"low-flation" in advanced economies risked undercutting an
already sluggish global recovery.
But U.S. data has generally improved after a dip in fortunes
now put down largely to harsh winter weather. Worries over China
and Ukraine that prompted investors to seek the relative
security of the yen have also slipped at least momentarily off
A Reuters poll of over 60 foreign exchange strategists taken
this week predicted the euro would fall to $1.37 in one month,
$1.33 in six and $1.29 in a year.
Steen Jacobsen, chief investment officer with leading retail
FX platform Saxobank, sees the euro sinking to $1.25 this year
on the back of more aggressive action later in the year to ease
"You may argue that there is no real reason flows-wise for
the euro to weaken, but I think for the lobbies and policymakers
$1.40 is a line they cannot cross," he said. "I think it will
get there and that will lead to action."
(Additional reporting by Patrick Graham in London; Editing by