The euro gained against the dollar on Thursday, snapping two days of declines, after ECB President Jean-Claude Trichet said the central bank would relax rules and continue to provide liquidity to Portugal, helping allay worries about Europe's debt crisis.
At a news conference after the European Central Bank raised its benchmark interest rate by 25 basis points to 1.50 percent, Trichet said the bank had decided to suspend the application of the minimum credit rating threshold in Portuguese collateral. "While to some extent this is a reaction to the recent downgrade of Portuguese debt, it also does show that the ECB position remains flexible, which could be important for ongoing discussions on a Greek debt rollover," said Vassili Serebriakov, currency strategist at Wells Fargo in New York.
Although Trichet did not use the term "strong vigilance" when speaking about monetary policy, a wording historically used by the ECB to communicate another rate hike is near, he did use the phrase "monitor very closely," which indicates further tightening could emerge in months ahead.
In late afternoon New York trade, the euro traded at $1.4352, up 0.3 percent on the day and far above the session low of $1.4219 hit immediately after Trichet started his news conference.
"The ECB chief is clearly trying to walk the tightrope as the central bank attempts to normalise monetary policy for the core eurozone where real rates remain negative while at the same time providing liquidity for the troubled periphery economies," said Boris Schlossberg, director of currency research at GFT Forex in New York.
Portugal's debt has come under scrutiny after Moody's this week downgraded the country's credit rating to junk. Meanwhile, US private employers stepped up hiring in June and the number of Americans filing for new jobless benefits fell last week, strengthening views the economy is positioned for a pick-up in the second half. "What is good news for risk and the US economy is bad news for the yen, as this currency pair (dollar/yen) is largely driven by interest rate differentials," said Andrew Cox, G10 strategist at CitiFX, a division of Citigroup in New York.
"The data certainly backs the risk-on trade and revisions higher in Friday's payrolls report can be expected." The dollar was up 0.4 percent at 81.20 yen. The euro rose 0.9 percent to 1.2120 francs. The dollar last traded up 0.6 percent at 0.8445 francs. The safe-haven Swiss franc had benefited from sovereign debt concerns but tends to fall as investors embrace risk.