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Euro holds gains in Asia after ECB stimulus surge

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The euro held its gains in Asian trading on Friday after surging on the back of suggestions from the European Central Bank that it is unlikely to further reduce interest rates after slashing deeper into negative territory.

[TOKYO] The euro held its gains in Asian trading on Friday after surging on the back of suggestions from the European Central Bank that it is unlikely to further reduce interest rates after slashing deeper into negative territory.

The single currency tumbled Thursday in reaction to the ECB's cut in its deposit rate and a widening of its huge bond-buying scheme, which went beyond most expectations.

But President Mario Draghi's statement soon afterwards that similar moves were not in the pipeline sent the unit soaring more than three percent.

"The ECB president in his news conference suggested that there would not be deeper cuts to negative regional deposit rates, which seemingly limits the extent to which the ECB can use policy to lower the euro," Matthew Sherwood, head of investment strategy at Perpetual Ltd in Sydney, according to Bloomberg News.

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The single currency bought US$1.1170 in early Asian trade, compared with US$1.1183 in New York. At one point Thursday it broke the US$1.12 barrier, having tumbled to as low as $1.08.

It was also at 126.74 yen in Tokyo, against 126.56 yen in US trade and below 125 yen earlier Thursday in Asia.

However, research house Capital Economics said the common currency would soon head south.

"The euro's resilience in the face of greater-than-expected stimulus from the ECB does not alter our view that the currency is likely to fall towards parity against the dollar later this year," it said.

"This is because that view has been, and continues to be, primarily driven by our forecast that the Fed will tighten policy much more aggressively than anticipated by the average investor."

Raising US interest rates would tend to boost demand for dollar-denominated assets at the expense of other currencies such as the euro and yen.

The dollar firmed to 113.45 yen from 113.17 yen.

Markets will now focus on a slate of Chinese economic data this weekend, followed by policy meetings by the Bank of Japan and Federal Reserve next week.

Investors want to see if the BoJ unleashes further stimulus to counter a downturn in Japan's economy.

In January, the bank shocked markets with an unprecedented move to negative interest rates. The policy was widely panned as a desperate bid to prop up Tokyo's faltering economic growth plans.

AFP

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