January 23, 2020 / 2:25 AM / a month ago

Dollar up vs euro as ECB holds rates steady, launches review

NEW YORK (Reuters) - The dollar rose against the euro on Thursday after the European Central Bank held interest rates steady and launched a broad review of its policy that was likely to see new President Christine Lagarde redefine the ECB’s main goal and how to achieve it.

FILE PHOTO: A U.S. five dollar note is seen in this illustration photo June 1, 2017. REUTERS/Thomas White/Illustration

“The ECB left policy and guidance unchanged at today’s meeting, with the ECB still arguing that the overall situation justifies the negative interest rate environment and still stressing that it remains ready to adjust all measures if necessary, with the balance of risks still tilted to the downside,” Natascha Gewaltig, director of European economics at Action Economics, said in a note.

The euro zone’s central bank has fallen short of its inflation target of just under 2% for years, even after Lagarde’s predecessor, Mario Draghi, launched increasingly aggressive stimulus measures.

“We will not leave any stone unturned and how we measure inflation is clearly something we need to look at,” Lagarde said.

“Basically, what she is saying is that they are reassessing some of the tools they have been using for basically a decade to booster up inflation to no avail,” said Minh Trang, senior FX trader at Silicon Valley Bank in Santa Clara, California.

The euro was 0.32% lower against the greenback at $1.1055, after slipping as low as $1.1037, its weakest since Dec. 2.

The Japanese yen strengthened and China’s yuan fell to a two-week low on Thursday as investors grew more anxious about the spread of a virus in China.

The World Health Organisation (WHO) said on Thursday it was “a bit too early” to declare a new coronavirus a global health emergency as China put millions of people on lockdown amid an outbreak that has killed 18 people and infected more than 630.

The moves up in the safe-haven yen and down in the yuan were measured, suggesting investors were not yet panicking about the virus.

Against the yen, which tends to draw investors during times of geopolitical or financial stress, the dollar was 0.32% lower at 109.48 yen.

The dollar gained 0.28% versus the offshore Chinese yuan CNH= to 6.9277 yuan. The Chinese currency has now lost more than 1% of its value since it touched six-month highs on Monday. The onshore yuan CNY=CFXS is on course for its worst week since August.

Sterling was 0.19% lower, but remained close to a 2-week high hit on Wednesday, as data this week reduced market expectations of a interest rate cut at next week’s Bank of England policy meeting.

Reporting by Saqib Iqbal Ahmed; Editing by Nick Zieminski and Chizu Nomiyama

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