TOKYO: The euro held most of its gains Friday as the European Central Bank's increased economic stimulus fell well short of market expectations.
Speculation has swirled for weeks that the ECB would further loosen its grip on monetary policy and ramp up a vast bond-buying programme to breathe new life into the 19-nation eurozone.
Those expectations sharply pushed down the euro, and revived talk that it may soon hit parity with the dollar for the first time since 2002.
On Thursday, the bank cut deposit rates further into negative territory -- meaning lenders must pay to park cash with it and so look to loan more -- and extended the length of its bond purchases.
However, the announcement left traders disappointed as it crucially failed to increase the size of the stimulus while the rate cut was less than hoped for.
"It appears that ECB President (Mario) Draghi wants to keep some ammunition on hand if conditions worsen," Raiko Shareef, a currency strategist at the Bank of New Zealand, said in an email to clients.
"But he has also hobbled his ability to move markets with rhetoric alone, since this recent experience has been much more talk than material action."
The news sent the euro soaring 3.1 percent against the dollar Thursday and 2.6 percent against the yen in US trading.
On Friday in Tokyo, the common currency was at $1.0926 compared with $1.0947 in New York and 133.98 yen from 134.23 yen. However, it is still well above the $1.06 and 130 yen levels in Asia Thursday before the ECB decision.
Also Friday, Federal Reserve boss Janet Yellen said it remained wary of a US interest rate rise because of concerns about a strong dollar and the divergence between its monetary policy and those of other central banks.
While the Fed is still widely expected to lift rates later this month, Yellen's comments caused dealers to ease off a recent run-up in the US unit. Traders are now awaiting the release of key US jobs data later in the day.
The greenback weakened against a string of emerging currencies -- including the South Korean won, Taiwan's dollar, Indonesia's rupiah and the Thai baht.
The Indian rupee briefly slumped to a two-year low past 67 against the dollar, prompting speculation among traders that the Reserve Bank of India intervened in the market by having state-run banks sell the greenback on its behalf.
The dollar was at 122.63 yen against 122.61 yen Thursday in New York.
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