The euro headed for its best week in more than a month against the dollar as signals the European Central Bank is unlikely to cut interest rates further outweighed the latest expansion of stimulus that exceeded expectations.
The single currency, the world’s worst-performing major currency over the past month heading into the ECB meeting Thursday, is the best performer among the developed-nation currencies over the past week. It rallied as much as 2 percent after ECB President Mario Draghi explained more rate reductions probably won’t be needed.
“It’s not that the ECB removed any possibility for further rate cuts, but markets took Draghi’s comments as undershooting expectations and reacted negatively by buying the euro,” said Yujiro Goto, senior currency strategist at Nomura International Plc in London. “Euro may be hard to sell in the near term as Draghi disappointed with his communication and some may need to amend their damaged positions.”
The euro was little changed at $1.1179 as of 9:13 a.m. in Tokyo, after surging 1.6 percent to $1.1177 on Thursday. The common currency has also strengthened 1.6 percent this week, the most since a 3 percent advance in the period ended Feb. 5. It slipped 0.1 percent to 126.34 yen from Thursday when it rose 1.5 percent.
The 19-nation shared currency initially fell after the central bank lowered interest rates and expanded its quantitative-easing plan. It took less than 90 minutes for the euro to reverse all of the decline, much quicker than the three days for the yen to erase losses after the Bank of Japan surprised markets on Jan. 29 by its decision to adopt negative rates.
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The euro’s swing between a 1.6 percent drop and 2 percent gain was the biggest intraday range since the ECB’s last meeting on Dec. 3 when Draghi’s stimulus extension underwhelmed investors and sparked the euro’s biggest one-day increase since 2009.
The yen advanced 0.1 percent to 113.06 per dollar, and is set for a 0.6 percent weekly gain, the most in a month. The BOJ next meets on March 14-15.
“Expectations for the BOJ to ease next week have fallen considerably,” Nomura’s Goto said. “While markets are positioning for no action, any disappointment after the fact may spark yen selling against the dollar.”
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