NEW YORK: The euro rallied for a third day against the dollar after the European Central Bank kept interest rates unchanged on Thursday but announced new liquidity measures to support the struggling euro zone economy. European Central Bank President Jean-Claude Trichet, in his final press conference as head of the ECB, said the ECB Governing Council decided to launch a new covered bond purchase program for an intended amount of EUR40 billion, Trichet said.
And the European Central Bank threw another lifeline to commercial banks by renewing offers to lend them one-year funding in two operations, this month and in December, Trichet said.
The bank kept interest rates steady at 1.5 percent
"The abundance of liquidity measures (Trichet) announced shows the ECB's resolve to boost liquidity and that is quite satisfactory to the market, easing tensions in the financial and banking sectors," said Kathy Lien, director of FX research at GFT in Jersey City, New Jersey,
The euro was last up 0.4 percent on the day against the dollar at $1.3399, just off the session high of $1.3413 but well off the low of $1.32415, according to electronic trading platform EBS.
Some investors had positioned for a rally in the euro and riskier assets and higher-yielding currencies had the ECB moved to support the economy.
But others still see the ECB measures as too little and cautioned abotu future gains.
"The market sees these as piecemeal measures, a band aid on the problems," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
Sterling fell to its lowest in 14 months against the dollar at $1.5270, after the Bank of England's monetary policy committee voted to buy 75 billion pounds more in assets to support the flagging British economy.
WAITING FOR A SOLUTION
Optimism that Germany was taking steps to safeguard the financial sector and improved US economic data provided some support for the single currency after a volatile week in which the French and Belgian governments pledged to rescue troubled bank Dexia.
Analysts said near-term event risk for the euro remained high, although some saw a fall below $1.30 as a good buying opportunity given policymakers are working toward a solution to the debt crisis that would boost the euro.
"Near-term risks are to the downside but a lot of bad news is already priced in to the euro," said Audrey Childe-Freeman, EMEA head of currency strategy at JP Morgan Private Bank in London.
"There has been a big move since early September. It feels like there will be another leg lower and after that we could definitely get a positive surprise, although European leaders need to deliver."
The single currency had jumped to a 4-1/2-month high of 1.2430 Swiss francs on EBS, before paring some of those gains. Traders cited media reports quoting a senior Swiss official as saying a higher exchange rate floor in euro/Swiss would be better for the economy.
The greenback dipped 0.1 percent against the yen to 76.689 on EBS.
Morgan Stanley said in a note on Thursday they initiated a fresh buy position in dollar/yen and recommended entering the trade at 76.75 yen with a target of 78 and stops at 76.40.
Copyright Reuters, 2011
Comments
Comments are closed.